SOME STUDY QUESTIONS ON THE YOUNG CHAPTERS

1. The Mystery of Money This chapter is about money and credit in the hierarchy of money; try to place all you read within the framework of lecture 2. Young (also) uses the means of payment definition of money to distinguish it from credit and debt. here does Young stand in the hierarchy! i.e. where does he draw the line between money and credit (p. 2"#$2%2)& hy is it difficult to decide whether bank notes' are currency or credit (p.2%(! also p.2)()& The main headings in the course syllabus are banking as a clearing system! as market making and as intermediation. *ages 2%2$2%( allude to each of these. +se T$,ccounts to represent the three ways of obtaining a bank deposits (p.2%-). /) 0f 0 deposit cash! then 0 gi1e up an asset (cash)! to get another asset for it (deposit). The bank gets an asset (the cash 0 brought) and creates a liability (the deposit 0 now own). 2) 0f 0 deposit a check! that increases my deposit balance and reduces somebody else2s. -) the bank can create a deposit by making a loan (allowing the borrower to write checks on the deposit account the bank has created for that purpose). hen you do this in T$,ccounts you will be ama3ed to reali3e that all it takes to create or destroy loans and bank money is book$keeping entries. . The Monet!ry Syste" of the US This chapter is mostly about different types of money (currency). There are se1eral types of it discussed (gold! sil1er! greenbacks! bank notes4). 5ow do you call the price(s) between them and whose responsibility is it to manage them& 6o people 1alue these currencies at their commercial 1alue! or at their legislated price& 7resham2s 8aw crops up se1eral times; it refers to the bad money dri1ing out the good! meaning the o1er1alued dri1ing out the under1alued. hat does this tell us about the last 9uestion& hat do the terms paper standard (p.2#/! p.2)/)! irredeemable (p.2#2) and fiat currency(p.2#-) ha1e in common&

#. Mo$%&%'%n( )!n*%n( Cre+%ts This chapter is about credit and how to organi3e a banking system. :n page 2)( the difference between the currency principle and banking principle is illustrated (see also p.-;#) with the e<ample of bank notes'! which is pri1ately issued and elastic! yet also acts as money between non$banks. =an you see when elasticity is desirable! and when control>discipline is& You can read the chapter as a search for the right balance. (pages 2)#ff elaborate on the disad1antage of only ha1ing control>discipline). Try to think of the organisations issuing emergency bank notes as precursors of the ?ederal @eser1e. 5ow do federal reser1e banks help introduce elasticity into the system (p.-;-$()& ,. De!r !n+ Che!- Money This last chapter considers the e<perience of the Aank of Bngland! the most sophisticated of all central banks at the time! and at the centre of the world financial system in the /) th =entury. 6ear money means that the short term interest rate for borrowing money is high! and cheap means a low rate. Those rates were strongly influenced by the Aank of Bngland2s rediscount rate (Aank @ate)! hence the chapter is about monetary policy. hat price of money is the policy instrument& hat is the obCecti1e& (p.-/2$-/-) The chapter starts with a useful characteri3ation of the currency 1ersus banking principles; compare those to the lecture notes. Young e<plains how the Aank of Bngland was constrained by the currency principle (*eel2s ,ct p.-;#)! so that the elasticity of money and credit had to come from somewhere else (the four points! p.-;)). =an you relate what the Aank of Bngland did (p.-//$-/-) with the lecture material on monetary policy! i.e. the artificial hierarchy& The remaining pages (-/2$-2;) in1ol1e foreign trade and e<change rates; keep your eyes on the mo1ements of gold and what they do to the balance sheet of the Aank of Bngland. 7i1en that the whole financial structure rested on gold (p.-/;) as in lecture /! the way the discount rate influences mo1ements in gold suggests how a central bank2s interest rate policy can influence the entire monetary hierarchy.
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' hat are bank notes& :ur familiar green dollar bills are ?ederal @eser1e Dotes. *ri1ate bank notes no longer e<ist E if bank notes e<isted today they would be =itibank$dollars and =hase$dollars.