Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
21 Cards in this Set
- Front
- Back
|
Function 1 of Money
|
Medium of exchange: an item buyers give to sellers when they want to purchase g&s
|
|
|
Function 2 of Money
|
Unit of account: the yardstick people use to post prices and record debts
|
|
|
Function 3 of Money
|
Store of value: an item people can use to transfer purchasing power from the present to the future
|
|
|
Types of Money
|
Measured in...Holds value over time so you don’t have to spend it as soon as you receive it
|
|
|
Money Supply
|
Qty of money available to econ.
|
|
|
Included in Money Stock
|
Currency and Demand Deposits
|
|
|
T Accounts
|
Banks Assets and Liabilities
Assets=Loans and Reserves Liabilities=Deposits |
|
|
Reserve ratio
|
Formula: R = (reserves/deposits)*100
|
|
|
Money Supply
|
Money Supply = deposits + currency (loans)
|
|
|
Money multiplier (m):
|
the amount of money the banking system generates with each dollar of reserves
|
|
|
Money Multiplier Ex.
|
The “m” equals 1/R, where “R” is a decimal
R = 10% = .1 m = 1/.1 = 10 Multiply the original amount of reserves by the money multiplier to see the total money supply Ex: $100* 10 = $1,000 |
|
|
Problems with money Supply
|
Households hold more of their money...decrease money supply
Banks hold more reserves than required...fewer loans...decrease money supply |
|
|
3 Tools Fed Use
|
1.Open-Market Operations (OMOs)
2.Reserve Requirements (R) 3.The Discount Rate: |
|
|
Bank Runs
|
Complicate control of money supply...Problem in the 30's and people withdrew from banks and money supply was low...Now bank runs are rare becuase Fed insures safety FDIC helps guarentees this!
|
|
|
Fed Reduces R
|
Money Supply Increases
|
|
|
Fed Increases R
|
Money Supply Decreases
|
|
|
Fed Lowers Discount Rate
|
Increase in Money Supply
|
|
|
Fed Raises Discount Rate
|
Decrease in Money Supply
|
|
|
Fed Purchases US Bonds
|
Increase in Money Supply...Interest Rate Decreases
|
|
|
Fed Sells US Bonds
|
Decrease in Money Supply...Interest Rate Increases
|
|
|
FFR
|
Rate Banks charge each other for loans of their excess reserves
|
