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62 Cards in this Set
- Front
- Back
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Money
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A liquid asset that serves as: A means of payment/exchange, A store of purchasing value, A unit of Account
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Implications of money being a means of payment/exchange
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a. more flexible than barter, streamlines/accommodates desired trades, b.) avoids need for "double coincidence of wants"
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Implications of money being a store of purchasing value
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a.) mantain stock of money over time (save), b.) non-perishable, c.) allows for lump sum payments instead of constant stream
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Implications of money being a unit of account
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-Measure and record economic Flows and Stocks
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Stock of Money includes
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currency, transactions or demand deposits, travelers checks, savings deposits, Time deposits, Money market fund balances
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Example of demand deposits
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checking accounts
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Example of Saving Deposits
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money market demand accounts
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Example of Time Deposits
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CDs (Certificate of Deposits)
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What are Time Deposits?
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Deposits, where one agrees to leave funds untouched for period of time; higher interest rate
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What are Money Market Funds/Accounts?
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Financial firm sells shares to public and uses proceeds to buy short-term securities (treasury bonds)
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Example of short term securities?
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Treasury Bonds
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Type of account? Firm passes along most of the interest to shareholders, charges small fee for management
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MMDAs
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Type of account? Investments are made in very safe assets, so appears almost like simple interest-paying checking/savings accounts
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MMDAs
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Stock of money includes?
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M1 + M2
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M1 consists of
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Currency, Transactions or demand deposits, Travelers checks
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Type of Money? Currency
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M1
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Type of Money? Transactions
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M1
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Type of Money? Demand Deposits
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M1
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Type of Money? Checking Accounts
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M1
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Type of Money? Transactions or Demand Deposits
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M1
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Type of Money? Travelers Checks
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M1
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M2 consists of...?
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Saving deposits, Time Deposits, Money Market Fund Balances
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Type of Money? Savings Deposits
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M2
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Type of Money? Time Deposits
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M2
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Type of Money? Money Market Fund Balances
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M2
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M1 consists how much?
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1.7 Billion
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M2 consists of how much?
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M1 + 8.5 Billion
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M1 stock of money includes
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Currency, Transactions or demand deposits, Travelers checks
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M2 Stock of money includes
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Saving deposits, Time Deposits, Money Market Fund Balances
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Generally M1 is
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forms of money used primarily as means of payment
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Generally M2 is
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including M1 and is the forms of money used primarily as a store of value
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The Federal Reserve Bank affects:
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The stock of money circulating in the economy (and interest rates) and regulates the banking sector
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Fed actions to alter stock of money affect:
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unempolyment, inflation, and output
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The Federal Reserve, unlike other banks, can
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"print" or create money
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What are Open Market Operations?
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Buying and selling of short-term government bonds
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Federal Actions are
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instruments of Monetary Policy
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Specifically, what can the FED do?
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1. Open market operations, 2. Direct control of some interest rates, 3. Changes in required reserve ratios, 4. Purchases of other securities (beyond standard open market operations)
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Short term bonds used in OMO are issued by..?
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U.S. Treasury
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U.S. Treasury issues bonds to..?
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finance government buying
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What happens when US Treasury issues bonds to finance government borrowing?
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Buyers give treasury money, in return for series of payment over time
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What does it mean when buyers give treasury money?
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government is borrowing these funds
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What does it mean when there is a return for series of payments over time?
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government is paying back principal and interest
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Bond
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Financial contract through which government or corporation (or other borrower) agrees to pay amount borrowed plus interest over a period of time
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What is a bond similar to?
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Similar to making a loan
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Seller of bond takes....?
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Buyers money (price of bond)
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Seller of bond promises to make ....?
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interest payments ("coupon payments") at regular intervals
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At the end of specified period the seller of bond...?
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repays principle
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Date of maturity
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the end of the specified period of the bond
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Principle
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original amount of the loan
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How does a bond work?
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1. seller of bond takes buyers money, 2. Seller of bond promises to make interest payments at regular intervals, 3. At date of maturity seller repays principle
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Assets
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Something valuable that an entity owns, benefits from, or has use of
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Liabilities
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Claims against the assets of an organization
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Fed's Assets
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Government Securities
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Fed's Liabilities
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Currency, Reserve Deposits
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Liabilities are legal claims against
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The Fed
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Currency is a citizen's claim against
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the federal reserve
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What are "reserve deposits" at the Fed?
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a. Individual banks must keep a fraction of deposits on hand or "in reserve". b. They do this by having accounts at the Fed (just like individuals have savings accounts at banks)
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Banks create money by...?
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lending from demand deposits
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Total Money supply is (stated simply)
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Money in deposits plus money loaned out and held as currency
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Deposits are a type of
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liability
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Reserves are a type of
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Asset
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loans are a type of
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Asset
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