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Chapter One: What Is Money?

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Published: July 02, 2019

Studying monetary policy requires an understanding of money: what it is and what it is for. Money serves three functions: As a medium of exchange, a store of value, and a unit of account. Central banks determine how much money there is in the economy and control the money supply using the formula MV = PY.

Video Recorded: August 20, 2018

Discussion Questions

  1. What makes monetary policy important?
  2. How does monetary policy relate to politics?
  3. What are the cost and benefits to society of central bank independence? 

Additional Readings

  • Read “Monetary Policy Rules Work and Discretion Doesn’t: A Tale of Two Eras” by John Taylor. Available here.
  • Read “The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong” by John Taylor. Available here.