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89 Cards in this Set
- Front
- Back
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Economists use the word "money" to refer to ___
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an asset regularly used to buy goods and services
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Liquidity refers to ___
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the ease with which an asset is converted to the medium of exchange.
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Rank assets from most to least liquid
(stock) (currency) ( fine art) |
currency, stocks, fine arts
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Current U.S. currency is what kind of money? What value does it have?
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fiat money with no intrinsic value
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What is commodity money?
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money with intrinsic value
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The legal tender requirement means what?
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people are more likely to accept the dollar as a medium of exchange
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What is included in M1?
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currency, demand deposits, and travelers' checks
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What is included in M2?
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Everything
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Demand deposits are in which M ?
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M1 and M2
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Credit card balances are included in
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Neither M1 nor M2
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What is the average holdings of currency per person in the US?
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3,600
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Why is the average holdings of currency per person in the US so high?
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1. Criminals may prefer currency
2. Dollars are used abroad a lot |
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Given the size of the U.S. money stock, what is puzzling about currency per person?
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how much there is
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Which agency is responsible for regulating the money supply in the US?
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The Federal Reserve
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How are Members of the Board of Governors selected?
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They are appointed by the US president
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How are presidents of the Federal Reserve regional banks selected?
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They are appointed by the banks' boards of directors.
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What part of the Fed meets every six weeks to discuss changes in the economy and determine monetary policy?
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The FOMC
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The NY Federal Reserve Bank's president always get to do what?
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Vote at the FOMC meetings
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The NY Federal Reserve Bank is located where?
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the traditional financial center of the US
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Who conducts open market transactions?
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The NY Federal Reserve Bank
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How are Board of Governors chosen?
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They are appointed by the president and then confirmed by the senate.
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How many regional banks are there in the Fed?
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12
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How many members of the Board of Governors are there?
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7
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How long is the term of a Board of Governor?
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14 years
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The Federal Reserve makes loans to individuals: True or False?
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False
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How long is the term of the Chair of the Board of Governors?
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Four Years
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Who regulates banks in districts?
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The 12 regional Federal Banks
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What is the Federal Open Market Committee made up of?
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President of the NY Branch, 4 of the 12 presidents of the Federal Reserve Regional banks and 7 members of the Board of Governors
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When the Fed manages the money supply, it most frequently does what?
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conducts open market operations
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What is money commonly known as?
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a medium of exchange
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What are the 3 functions of money?
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Medium of Exchange
Unit of Account Store of Value |
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What is a medium of exchange?
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An item that buyers give sellers to purchase goods and services; may be anything accepted as payment
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What is Unit of Account?
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The yardstick people use to post prices and record debts.
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What is Store of Value?
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An item that people can use to transfer purchasing power from the present to the future.
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What are the kinds of money?
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Commodity and Fiat
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Examples of Commodity money?
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Gold, silver, cigarettes
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What is fiat money?
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Anything used as money because of a government decree
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Examples of fiat money?
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Coins, currency, check deposits
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What kind of money are Check Deposits?
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Fiat money.
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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 by writing a check.
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What is in M1?
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Demand Deposits
Traveler's Checks Other checkable deposits Currency |
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How much does M1 make up for?
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1,696 billion
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How much does M2 make up for?
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8,544 billion
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What is in M2?
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All of M1 and
Saving deposits Small time deposits Money market mutual funds |
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How much currency per adult in the US?
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3,653
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What acts as the nation's central bank?
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The Federal Reserve
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What does the Federal Reserve do?
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Oversees the banking system
Regulates the quantity of money |
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Who regulates the quantity of money?
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The Federal Reserve
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The Fed is run by who?
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A Board of Governors
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How many members of the Board of Governors are appointed by the President and confirmed by the Senate?
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7
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What does the Chairman of the Board of Governors do?
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Directs Fed traffic, testifies on Fed policy, and presides over board meetings.
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How are terms set in the Board of Governors?
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Staggered with 14 year terms so a seat becomes vacant every 2 years
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What makes up the Federal Reserve Board in Washington D.C.?
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The Federal Reserve Board in Washington D.C. and 12 Federal Reserve Banks
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How many directors of each Federal Reserve Banks?
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9
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How many directors of the Federal Reserve Banks are appointed by the Board of Governors?
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Three
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How many directors of the Federal Reserve Banks are elected by the commercial banks in the district?
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Six
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Who appoints the district president of the Federal Reserve Banks?
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The directors of the banks, which is then approved by the Board
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What does the Federal Open Market Committee do?
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1. Make policies for the Fed
2. Meet every six weeks to review the economy |
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What is the FOMC made up of?
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-Chairman and six members of the Board of Governors
-President of the NY Federal Reserve Bank -Presidents of the other 11 regional Federal Reserve banks |
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Who conducts monetary policy?
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The Federal Open Market Committee
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What is Monetary Policy?
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The setting of the money supply by policy makers 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 Federal Reserve?
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1. Banker's bank
2. Regulate banks to make sure they follow laws 3. FOMC conducts money supply control. |
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What is the primary way in which the Fed changes money supply?
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Open-market operations of buying or selling government funds.
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To increase money supply, what does the Fed do?
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Buy government bonds from the public.
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To decrease money supply, what does the Fed do?
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Sell government bonds to the public.
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What is fractional-reserve banking?
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holding a fraction of money as reserves.
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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, what happens to the money supply?
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It increases.
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What are the 3 steps in fractional-reserve banking?
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1. Accept Deposit
2. Keeps a portion as Reserves 3. Lends out the Rest |
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When a bank loans money, generally what happens to that money?
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It gets deposited in another bank.
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What is the Money Multiplier?
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The amount of money the banking system generates with each doller of reserves.
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Formula for Money Multiplier?
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1 / R (decimal form)
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What are the tools the Fed has for monetary control?
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1. Open market operations
2. Changing reserve requirements 3. Changing discount rate |
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What is the role of the Fed Funds rate?
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Buy securities means increased money supply and decreased interest.
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Increasing reserve requirements does what to the money supply?
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Decreases it
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What is the discount rate?
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The interest rate the Fed charges banks for loans
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Increasing the discount rate does what?
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decreases the money supply
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Decreasing the discount rate does what?
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increasing the money supply.
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The Discount Rate and the Money Supply are _____ proportional.
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indirectly proportional
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Why is the Fed's control of the money supply imperfect?
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The Fed doesn't control the amount households keep in deposits, and how much bankers choose to lend.
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Equation for real interest rate?
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Nominal interest rate - Inflation Rates
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Equation for Nominal Interest Rate?
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Real inflation rate + inflation
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Who first studied the Fisher effect?
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Irving Fisher
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What is the maximum percentage of inflation that the Fed accepts in order to allow for money printing?
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2.0%
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What is 2011's level on inflation?
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3.9%
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In the 1979 inflation crisis, what was the FOMC's suggested policy to curb inflation?
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Reduce money printing.
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In the short term, reducing money printing can lead to what problems?
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Interest rates for bank loans go up, meaning less people borrow money, which means less spending.
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