Cfa Reading 24

Front 1

M1

Back 1

All currency not held at banks, travelers' checks, and checking account deposits of individuals and firms.

Front 2

M2

Back 2

All components of M1 plus time deposits, savings deposits and money market mutual fund balances.

Front 3

Federal Funds Rate

Back 3

The rate at which banks make short-term (generally overnight) loans of reserves to other banks.

The rate its market determined. The fed influences it through changes in the money supply.

Front 4

Discount Rate

Back 4

The rate at which banks can borrow reserves from the fed.

A lower rate makes reserves less costly and encourages lending thereby tending to decrease interest rates.

Front 5

What are the three policy tools of the fed?

Back 5

1) Open Market Operations

2) Bank Reserve Requirements

3) Discount rates

Front 6

Currency Drain

Back 6

The effect of people holding the increase in the money supply as currency rather than depositing it so that the multiplier effect can take place.

Front 7

Money Multiplier

Back 7

(1+c)/(r+c)

where c is currency as a percentage of deposits and r is the required reserve ratio.

Front 8

The quantity theory of money

Back 8

P = M * (V/Y)

where
P = price
M = money supply
V = velocity of money
Y = real output

Holding velocity and output euqal, if the money supply increases so will prices.