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46 Cards in this Set

  • Front
  • Back
What are the three functions of money?
medium of exchange
store of value
unit of account
What is a store of value?
an item people can use to transfer purchasing power
What is a unit of account
the yardstick people use to post prices/debts
What are the kinds of money?
Commodity Money

Fiat Money
What is fiat money?
currency without intrinsic value
What is currency?
paper bills and coins in the hands of the public
What are Demand Deposits
Balances in bank accounts that depositors can access on demand
What is in M1?
Demand Deposits
Traveler's Checks
Other check able deposits
Currency
What is in M2?
Savings deposits
Small time deposits
Money Market mutual funds

(M1
Demand deposits
Traveler's Checks
Currency)
How much money is in M1?
1,696 billion
How much money is in M2?
8,544 billion
In 2009 how much money of US $ was outstanding?
862 billion
According to studies, how much does the average adult have in their wallet?
3,650
Why does the average American have so much money in their wallet?
-Currency held abroad

-Currency held by illegal entities
What is the nation's central bank?
Federal Reserve
What year was the Federal Reserve created?
1913
What is the Fed's big job?
regulating quantity of money
Three elements of the Federal Reserve?
1. Board of Governors
2. Regional Federal Reserve Banks
3. Federal Open Market Committee
How many members are in the Board of Governors?

How are they chosen?
7 members

Appointed by the President and confirmed in Senate
What does the Chairman of the Board of Governors do?
-Directs Fed staff
-Presides over board meetings
-Testifies about Fed policy
How long do the Board of Governor members work?
14 year terms with vacancies every 2 years
What is the term length for the Chairman of the Board of Governors President?
4 years
The Federal Reserve is made up of what groups?
Federal Reserve Board

12 Regional Banks
How many regional Federal Banks are there?
12
How many directors of each bank of the Fed Reserve?
9
Demographics of the 9 directors of each Federal Reserve bank?
Three appointed by the Board of Governors

Six elected by commercial banks in the district.
How is the district president of each Federal Reserve bank chosen?
Appointed by the directors of the bank and approved by Board of Governors
What does the FOMC do?
-Makes policies for the Fed reserve

-Meets every 6 weeks to review economy
Who makes up the FOMC?
-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
What is monetary policy?
the setting of the money supply by policmakers in the central bank
Who implements the Fed's most important policy decisions?
The New York Fed
What are the three functions of the Fed?
-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)
What is the primary way for the Fed to control the money supply?
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.
To increase the money supply, the Fed ___ government bonds to the public.
buys
To decrease the money supply, the Fed ___ government bonds to the public.
sells
What is the reserve ratio?
the fraction of deposits that banks hold as reserves
When a bank makes a loan from its reserves, the money supply ____
increases
When a bank makes a loan from its reserves, ____
money supply increases
What is the money multiplier
the amount of money the banking system generates with each dollar of reserve
Money Multiplier equation?
Reciprocal of reserve ratio,

1
--
R
If reserve requirement is 20%, what's the money multiplier equation?
5/1

or

5x
What tools does the Fed have for monetary control?
1. Open market operations
2. Changing the reserve requirement
3. Changing discount rate
How will the reserve ration be changed to decrease money supply?
Increasing reserve requirement
Increasing discount rate does what to money supply?
Decreases money supply
Decreasing discount rate does what to money supply?
Increases money supply
What are two problems the Fed has with controlling the money supply?
They don't control:

-How much households keep in deposits
-How much bankers lend out