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46 Cards in this Set
- Front
- Back
What are the three functions of money?
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medium of exchange
store of value unit of account |
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What is a store of value?
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an item people can use to transfer purchasing power
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What is a unit of account
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the yardstick people use to post prices/debts
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What are the kinds of money?
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Commodity Money
Fiat Money |
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What is fiat money?
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currency without intrinsic value
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What is currency?
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paper bills and coins in the hands of the public
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What are Demand Deposits
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Balances in bank accounts that depositors can access on demand
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What is in M1?
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Demand Deposits
Traveler's Checks Other check able deposits Currency |
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What is in M2?
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Savings deposits
Small time deposits Money Market mutual funds (M1 Demand deposits Traveler's Checks Currency) |
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How much money is in M1?
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1,696 billion
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How much money is in M2?
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8,544 billion
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In 2009 how much money of US $ was outstanding?
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862 billion
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According to studies, how much does the average adult have in their wallet?
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3,650
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Why does the average American have so much money in their wallet?
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-Currency held abroad
-Currency held by illegal entities |
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What is the nation's central bank?
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Federal Reserve
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What year was the Federal Reserve created?
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1913
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What is the Fed's big job?
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regulating quantity of money
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Three elements of the Federal Reserve?
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1. Board of Governors
2. Regional Federal Reserve Banks 3. Federal Open Market Committee |
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How many members are in the Board of Governors?
How are they chosen? |
7 members
Appointed by the President and confirmed in Senate |
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What does the Chairman of the Board of Governors do?
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-Directs Fed staff
-Presides over board meetings -Testifies about Fed policy |
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How long do the Board of Governor members work?
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14 year terms with vacancies every 2 years
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What is the term length for the Chairman of the Board of Governors President?
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4 years
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The Federal Reserve is made up of what groups?
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Federal Reserve Board
12 Regional Banks |
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How many regional Federal Banks are there?
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12
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How many directors of each bank of the Fed Reserve?
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9
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Demographics of the 9 directors of each Federal Reserve bank?
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Three appointed by the Board of Governors
Six elected by commercial banks in the district. |
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How is the district president of each Federal Reserve bank chosen?
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Appointed by the directors of the bank and approved by Board of Governors
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What does the FOMC do?
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-Makes policies for the Fed reserve
-Meets every 6 weeks to review economy |
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Who makes up the FOMC?
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-Board of Governors (including the Chairman)
-President of the NY Fed Reserve Bank -Presidents of the other 11 regional Fed Banks, with only 4 voting on a rotation |
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What is monetary policy?
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the setting of the money supply by policmakers in the central bank
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Who implements the Fed's most important policy decisions?
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The New York Fed
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What are the three functions of the Fed?
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-Act as a banker's bank as a lender of last resort
-Regulates banks to ensure they follow federal laws -Control money supply (via the FOMC) |
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What is the primary way for the Fed to control the money supply?
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open market operations
To increase the money supply, the Fed buys government bonds from the public. To decrease the money supply, the Fed sells government bonds to the public. |
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To increase the money supply, the Fed ___ government bonds to the public.
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buys
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To decrease the money supply, the Fed ___ government bonds to the public.
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sells
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What is the reserve ratio?
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the fraction of deposits that banks hold as reserves
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When a bank makes a loan from its reserves, the money supply ____
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increases
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When a bank makes a loan from its reserves, ____
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money supply increases
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What is the money multiplier
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the amount of money the banking system generates with each dollar of reserve
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Money Multiplier equation?
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Reciprocal of reserve ratio,
1 -- R |
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If reserve requirement is 20%, what's the money multiplier equation?
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5/1
or 5x |
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What tools does the Fed have for monetary control?
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1. Open market operations
2. Changing the reserve requirement 3. Changing discount rate |
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How will the reserve ration be changed to decrease money supply?
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Increasing reserve requirement
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Increasing discount rate does what to money supply?
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Decreases money supply
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Decreasing discount rate does what to money supply?
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Increases money supply
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What are two problems the Fed has with controlling the money supply?
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They don't control:
-How much households keep in deposits -How much bankers lend out |