4 MONEY, THE PRICE

LEVEL, AND
INFLATION
After studying this chapter, you will be able to:
 Define money and describe its functions

 Explain the economic functions of banks

 Describe the structure and functions of the Federal

Reserve System (the Fed)

 Explain how the banking system creates money

 Explain what determines the quantity of money and the

nominal interest rate

 Explain how the quantity of money influences the price

level and the inflation rate

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 What is Money?

Money is any commodity or token that is

generally acceptable as a means of payment. .
‫لمال هو أي سلعة أو شيئ مقبول بشكل عام كوسيلة للدفع‬
Money has three other functions:
 Medium of exchange ‫وسيلة تبادل‬
 Unit of account ‫وحدة الحساب‬
 Store of value ‫مخزن القيمة‬

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Medium of Exchange

A medium of exchange is an object that is generally accepted in

exchange for goods and services.
.‫وسيلة التبادل يمعنى ان المال مقبول بشكل عام مقابل السلع والخدمات‬

In the absence of money, people would need to exchange goods

and services directly, which is called barter ‫ المقايضة‬.
. ‫ سيحتاج الناس إلى تبادل السلع والخدمات مباشرة المقايضة‬، ‫في غياب المال‬
Barter requires a double coincidence of wants, which is rare, so
barter is costly.
‫ لذا فإن المقايضة‬، ‫ وهو أمر نادر الحدوث‬، ‫تتطلب المقايضة مصادفة مزدوجة لالحتياجات‬
‫مكلفة‬
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 What is Money?

Unit of Account
A unit of account is an agreed measure for stating the
prices of goods and services.
‫وحدة الحساب هي مقياس متفق عليه لتحديد أسعار السلع والخدمات‬

Store of Value
As a store of value, money can be held for a time and later
exchanged for goods and services.
‫يمكن االحتفاظ بالمال لفترة زمنية ثم يتم استبدالها فيما بعد بالسلع والخدمات‬

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 What is Money?
Money in the United States Today
Money consists of
 Currency ‫عملة‬
 Deposits at banks and other depository institutions
‫الودائع في البنوك ومؤسسات اإليداع األخرى‬
Currency is the notes and coins held by individuals and
businesses.
.‫العملة هي النقود المعدنية التي يحتفظ بها األفراد والشركات‬
Deposits are money because the owners can use the deposit
to make payments.
.‫الودائع هي أموال ألن المالكين يمكنهم استخدام اإليداع لسداد المدفوعات‬
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 What is Money?
Official Measures of Money
The two main official measures of money are M1 and M2.
M2 ‫ و‬M1 ‫المقياسان الرسميان للنقود هما‬
M1 consists of currency and traveler’s checks and checking
deposits owned by individuals and businesses.
‫ يتكون من العملة والشيكات السياحية والودائع في الحسابات الجارية التي يملكها‬M1
.‫األفراد والشركات‬
M2 consists of M1 plus time deposits, saving deposits, money
market mutual funds, and other deposits.
‫ والصناديق والودائع‬، ‫ والودائع االدخارية‬، ‫ باإلضافة إلى الودائع بأجل‬M1 ‫ يتكون من‬2M
‫األخرى‬

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 What is Money?

Are M1 and M2 Really Money?

All the items in M1 are means of payment, so they are
money.
‫ هي اموال بما انها وسيلة دفع‬M1
Some saving deposits in M2 are called liquid assets.
‫ تسمى األصول السائلة يعني سهل تحويلها الى اموال‬M2 ‫بعض الودائع االدخارية في‬

Liquidity is the property of being instantly convertible into a

means of payment with little loss of value.
.‫السيولة هي قابلية التحويل على الفور إلى وسيلة للدفع اي الى اموال‬
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 What is Money

Deposits are Money but Checks Are Not

In defining money, we include, along with currency,
deposits at banks and other depository institutions.
A check is an instruction to a bank to transfer money.
‫الشيك ليس مال و انما هو تعليمات للبنك لتحويل األموال‬
A check is not money, but the deposit on which it is written
is money. ‫و لكن الوديعة في الحساب البنكي الجاري هي المال‬
Credit Cards Are Not Money?
A credit card enables the holder to obtain a loan, but it
must be repaid with money. Credit cards are not money.

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 The Federal Reserve System
The Federal Reserve System (the Fed) is the central bank of
the United States. ‫البنك المركزي االمريكي‬

A central bank is the public authority that regulates a nation’s

depository institutions and controls the quantity of money.
‫البنك المركزي هو السلطة العامة التي تنظم المؤسسات المالية في الدولة وتسيطر على كمية‬
.‫المال‬
The Fed’s goals are to keep inflation in check, maintain full
employment, moderate the business cycle, and contribute toward
.achieving long-term growth

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 The Federal Reserve System

The Fed’s Policy Tools

To achieve its objectives, the Fed uses three main
policy tools: ‫ سياسات للبنك المركزي‬3 ‫لتحقيق اهدافه‬

 Open market operations ‫عمليات السوق المفتوحة‬

 Last resort loans ‫قروض المالذ األخير‬

 Required reserve ratios ‫نسب االحتياطي المطلوبة‬

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Open Market Operations
An open market operation is the purchase or sale of
government securities by the Fed from or to a commercial bank
or the public.
‫عملية السوق المفتوحة هي شراء أو بيع األوراق المالية الحكومية من قبل اللبنك المركزي من‬
‫او الى البنوك التجارية أو العامة‬
When the Fed buys securities, it pays for them with newly
created reserves held by the banks.
‫ فإنه يدفع للبنوك مما يزيد في االحتياطي لديهم‬، ‫عندما يشتري البنك المركزي األوراق المالية‬
When the Fed sells securities, they are paid for with reserves
held by banks.
‫ فإنه ياخذ الموال من للبنوك مما يقلل من االحتياطي‬، ‫عندما يبيع البنك المركزي األوراق المالية‬
‫لديهم‬
So open market operations influence banks’ reserves.
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 The Federal Reserve System

Last Resort Loans ‫قروض المالذ األخير‬

The Fed is the lender of last resort, which means the Fed
stands ready to lend reserves to depository institutions that are
short of reserves.

Required Reserve Ratio ‫نسب االحتياطي المطلوبة‬

The Fed sets the required reserve ratio, which is the
minimum percentage of deposits that a depository institution
must hold as reserves.
The Fed rarely changes the required reserve ratio.

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 The Money Market

The Price Level ‫مستوى االسعار‬

Nominal money is the amount of money
measured in dollars.

Real money = nominal money ÷ price level.

.

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 The Money Market

The Demand for Money

The demand for money is the relationship
between the quantity of real money
demanded and the nominal interest rate

‫طلب المال هو العالقة بين كمية االموال الحقيقية و نسبة الفائدة‬

‫االسمية‬

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the demand for money curve. ‫منحنى طلب المال‬
A rise in the interest rate brings a decrease in the quantity of
real money demanded.
‫يؤدي ارتفاع سعر الفائدة إلى انخفاض كمية األموال الحقيقية المطلوبة‬

A fall in the interest rate brings an increase in the quantity of

real money demanded.
.‫االنخفاض في سعر الفائدة يؤدي الى زيادة في كمية األموال الحقيقية المطلوبة‬

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 The Money Market

Shifts in the Demand for

Money Curve
a decrease in real GDP
decreases the demand for
money and shifts the
demand curve leftward.

An increase in real GDP

increases the demand for
money and shifts the
demand curve rightward.

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 The Money Market

Money Market Equilibrium ‫توازن سوق المال‬

Money market equilibrium occurs when the quantity of
money demanded equals the quantity of money supplied.

‫يحدث توازن سوق المال عندما تكون كمية األموال المطلوبة مساوية لكمية األموال‬
.‫المقدمة‬

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© 2016 Pearson Education, Ltd.
 The Money Market

Short-Run Equilibrium
Suppose that the Fed uses open market
operations to make the quantity of money $3
billion.

The equilibrium interest rate is 5 percent a year.

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