Econ Test Ch 23-25

Front 1

money

Back 1

anything that is generally accepted as a medium of exchange

Front 2

bartering

problem: double coincedence of wants

Back 2

direct excahnge of goods and services for other goods and services

you must find someone that wants what you want but also has what you have

Front 3

role of money: medium of exchange

Back 3

what seller generally accept and buyers generally use to pay for goods and services

Front 4

role of money: store of value

Back 4

asset that can be used to transport purchasing power from one time period to another

Front 5

role of money: unit of account

Back 5

a standard unit that provides a consistent way of qouting prices

Front 6

liquidity property of money

Back 6

property of money that maeks it a good medium of exchange as well as a store of value: it is portable and radily accepted and thus easily exhanged for goods

Front 7

commodity monies

Back 7

items used as money that also have intrinsic value in some other use

Front 8

fiat, or token money

Back 8

items designated as money that are instrinsically worthless

Front 9

legal tender

Back 9

money that a government has required to be accepted in settlment of debts

Front 10

currency debasement

Back 10

the decrease in the value of money that occurs when its supply is increased rapidly

Front 11

M1 or transactions money

Back 11

money that can be directly used for transactions

Front 12

M2 or broad money

Back 12

m1 plus savings accounts, money market accounts, and other near monies

Front 13

near monies

Back 13

close substitutes for transactions money such as savings accounts and money market accounts

Front 14

financial intermediaries

Back 14

banks and other financial institutions that act as a link between those who have money to lend and those who want to borrow money

Front 15

run on a bank

Back 15

occurs when many of those who have claims on a bank (deposits) present them at the same time

Front 16

federal reserve bank (the fed)

Back 16

central bank of the united states

Front 17

reserves

Back 17

the deposits that a bank has at the federal reserve bank plus its cash on hand

Front 18

required reserve ratio

Back 18

the percentage of its total deposits that a bank must keep as reserves at the federal reserve

Front 19

excess reserves

Back 19

the difference between a banks actual reserves and its requires reserves

Front 20

money multiplier

Back 20

1/RRR

Front 21

functions of fed: clearing interbank payments

Back 21

allows banks to shift money around virtually instantaneously

Front 22

function of fed: regulate bank system

Back 22

federal desposit insurance corporation- insures most deposits up to 100,000

Front 23

function of fed: lenger of last resort

Back 23

one of the functions of the fed: it provides funds to troubled banks that cannount find any other sources of funds

Front 24

tools for changing money supply: change RRR

Back 24

increase or decrease the amount of money circulating

Front 25

tools for changing money supply: changing discount rate

Back 25

interest rate fed charges to borrow money

Front 26

tools for changing money supply: engange in open market operations

can the tresury print money to finance a defecit

Back 26

buy and sell US government securities

no

Front 27

moral suasion

Back 27

the pressure that in the past the fed exerted on member banks to discourage them from borrowing heavily from the fed

Front 28

monetary policy

Back 28

the behavior of the federal reserve concerning the money supply

Front 29

interest

Back 29

the fee that borrowers pay to lenders for the use of their funds

Front 30

interest rate

Back 30

the annual interst payment on a loan expressed as a percentage of the loan. equal to the amount of the interest recieved per year divided by the amount of the loan

Front 31

transaction motive

Back 31

the main reason that people hold money- to buy things

Front 32

nonsynchonization of income and spending

Back 32

the mismatch between the timing of money inflow to the household and the timing of money outflow for household expenses

Front 33

optimal balance

Back 33

level of average money balances that earn most profit, taking into account both interst earned on bonds and costs paid for switching from bonds to money

Front 34

speculation motive

Back 34

one reason for holding bonds instead of money: because the market value of interst bearing bonds is inversely related to the interest rate, investory may wish to hold bonds when interest rate are high with the hope of selling them when interest rates fall

Front 35

detrimants of money demand

Back 35

interest rate (inverse relationship)

dollar volume of transactions (positie relationship)

Front 36

excess supply of money

excess demand of money

Back 36

left of graph (falling rates)

right of graph (rising rates)

Front 37

tight monetary policy

easy monetary policy

Back 37

fed policies that contract the money supply in an effort to retrain the economy

Front 38

goods market

Back 38

market in which goods and services are exchanged and in which the equilibrium level of aggregate output is determined

Front 39

money market

Back 39

market in which financial instruments are exchanged and in which the equilibrium level of interest rate is determined

Front 40

relationship between income and the demand for money

Back 40

as income rises, demand for money rises

Front 41

relationship between interest rate and planned investment

Back 41

inverse relationship

as rates rise, investment falls
as rates fall, investment rises

Front 42

expansionary fiscal policy

expansionary monetary policy

Back 42

an increase in government spending or a reduction in net taxes aimed at increasing aggregate output (income) (y)

in increase in the money supply aimed at incrreasing aggregate output (income) (y)

Front 43

crowding out effect

Back 43

the tendency for increases in government spending to cause reductions in private investment spending

Front 44

interest sensitivity or insensitivity of planned investment

Back 44

thre responsiveness of planned investment spending to change in the interest rate. interest sensitivity means that planned investment spending changed a great deal in reponse to changes in the interest rate. interst insensitivity means little or no change in planned investment as a reult of changed in the interest rate

Front 45

effects of expansionary fiscal policy

Back 45

y increases less than if r did not increase (y and r)

Front 46

effects of expansionary monetary policy

Back 46

r decrease less than if Md did not increase (r and Md)

Front 47

effects of contractionary fiscal policy

Back 47

y decreases less than if r did not decrease

Front 48

effects of contractionary monetary policy

Back 48

r increases less than if M d did not decrease

Front 49

IS-LM diagram

Back 49

illustrates negative relationship between equilibrium value of aggreagate output (income)(y) and the interest rate in the goods market

Front 50

IS Curve

LM curve

Back 50

neg relationship between r and y

pos relationship between r and y