Chapter 25: Monetary Institutions
1. Note that many of our expressions involving money reflect goods that at some time or place have
functioned as money–bucks (buckskins), clams, bread, describing a quarter as two bits (two one–eighth
2. Roy Radford s classic article on the economic organization of a POW camp is a fine illustration of
societies tendency to create something (cigarettes from Red Cross packages) to function as money.
3. You might want to note that the U.S. government keeps trying to replace dollar bills with dollar coins
(with early Presidents on the current coins, after failures for Susan B. Anthony and Sacajawea), because
5. Note that disagreements about what we should count as money for various purposes implies that it is
6. A good illustration involving money is to ask in class whether rubles in the old Soviet Union were
money. What if money is not internationally exchangeable and stores that would accept it have nothing
7. Note that the functions (advantages) of money underlie our concern about inflation and deflation, both
of which reduce money s ability to reduce transactions costs.
8. A good way to see how important money is to the operation of an economy, pick a common
transaction (e.g., filling up your car with gas) and ask how easily such transactions could take place
9. Note that in cases where another outside currency (e.g., U.S. dollars) exists to trade with, Gresham s
10. Fractional reserve goldsmithing, where goldsmiths (who had the safest places to store gold) would
issue paper claims on gold, which circulated as money, and also lent out some of the gold, also
circulating as money, is a popular analogy to modern fractional reserve banking.
11. Given the importance of the fact that loans and secondary reserves pay interest, but official reserves
12. A useful in-class question to ask is: Is money an asset or a liability? It is both; an asset of the
account holder, but a liability of the banding system.
14. It may be worth going over the process of money destruction in more detail in class, to make sure
students clearly understand the process involved as well as that of money creation (which is more
intuitive).
15. It is often worth going through the calculation of different money multipliers for different required
16. You may want to extend the money multiplier formula to include desired excess reserves in the
banking system (MM = 1 / rr + er) in class, to show how desired excess reserves reduce both the money
17. In class, you may want to ask how interstate banking may have reduced the extent of bank runs in
18. An interesting question to ask to illustrate some issues of internet banking is: Why might imposing
looking banks have acted as a form of depositor assurance against insolvency? Why does internet
banking rely on to provide that assurance? (Deposit insurance)