Money and Financial Institutions.

Money can be anything that is generally accepted in payment for goods or services. It pro­vides a medium of exchange, a measure of value, and a store of value. Principal forms of money are currency, demand deposits (checking accounts), and other checkable deposits.

Financial institutions such as commercial banks, savings and loan associations, and savings banks are essential to the smooth operation of a market economy system because demand deposits and other checkable deposits held by banks and thrifts make up the largest part of the money supply. These institutions also provide a safe place for the deposit of funds and serve as a source of loans and other financial services.

Because loans are typically added to demand deposits, one can say that the lending ability of banks serves to "create money." How much money the commercial banks can create is limit­ed by the reserve ratio, which determines the amount of money that a bank can lend at any particular point in time.

The Federal Reserve System is the nation's central bank. It provides banking services for financial institutions and supervises their activities. It also acts as a bank for the federal gov­ernment.

The "value of money" is really its purchasing power-the amount of goods and services it can buy. The purchasing power of money can increase, as it does during periods of deflation, and it can decrease, as it does during periods of inflation.

The causes of inflation are generally described as either demand-pull or cost-push. Demand-push inflation is brought on by an excess of purchasing power that serves to drive up prices ("too much money chasing too few goods"). Cost-push inflation is brought about by rising production costs that feed upon one another. Although certain groups within the economy may benefit from the increasing prices associated with inflation, more people and the econo­my as a whole are likely to suffer.

Topical Vocabulary:

To accept in payment – принимать в уплату

Medium of exchange – средство обмена

Currency – валюта

Demand deposit – вклад до востребования

Savings bank – сберегательный банк

Reserve ratio – резервная квота

To supervise – осуществлять надзор

Purchasing power – покупательная способность

To increase – увеличивать (ся)

Deflation – дефляция

To decrease – уменьшать (ся), снижаться

Inflation – инфляция

Demand-pull – увеличение спроса

Cost-push – рост цен

Excess – избыток, превышение

To benefit – извлекать выгоду

Дата добавления: 2015-11-14