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22 Cards in this Set
- Front
- Back
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def. of money
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set of assets in an economy that people regularly use to buy goods and services from other people
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3 functions of money
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medium of exchange
unit of account store of value |
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def. of liquidity
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describes how easily an asset can be converted into the economy's medium of exchange
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what is the most liquid asset?
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money
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assets included in M1
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currency,demand deposits, travelers checks, other checkable deposits
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Def. of fractional-reserve banking
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only keeping the required amount in banking system
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Who runs the federal reserve?
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the board of directors
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what is the board of directors?
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7 people appointed by the president. 14-year terms
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who is the chairman of the fed?
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Ben bernacke
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what is the federal open market committee?
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includes the 7 board of directors and 5 of the 12 presidents of the main banks who get to vote on policies. The 5 always rotate, but NY always has a vote
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Why is the Fed independent of the President of the U.S. and Congress?
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--congress and pres cannot override decisions
--the fed doesnt need congress' funding --fed is privately held corporation |
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2 main purposes of the Fed
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1. regulate banking system and ensure their "health"
2. increase/decrease the money supply |
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Actual reserves =
Required reserves = Excess reserves = Required reserve ratio = |
**deposits that banks have received and not loaned out
**required amt banks need to have on hand **actual reserves - required reserves **fraction of deposits banks hold as reserves |
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Definition of the money multiplier
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amt of money the banking system generates with each dollar of reserves... 1/ratio
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3 tools of the Fed and how changes affect money supply
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1. Required reserve ratio
-decreasing ratio increases M1 2. discount rate -decreasing reate increases M1 3. open market operations -increasing deposits increases M1 |
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What is the increase in M1 called?
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expansionary monetary policy
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what is the decrease in M1 called?
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contractionary monetary policy
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when are the immediate and over-time changes taken place under the open market operations?
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-immediate change when deposits go straight to Fed
-more slow change when deposits go to banks and then fed |
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How does the open market operations increase M1 and how do they decrease M1?
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Increase by BUYING gov. bonds
Decrease by SELLING gov. bonds |
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Def. of discount rate
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interest rate charged by the fed on loans it makes to banks
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Def. of open market operations
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purchase or sale of U.S. gov. bonds by the FED in the open market
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Def. of federal funds rate
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short term interest rate that banks charge on another for loans...loans are overnight
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