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37 Cards in this Set
- Front
- Back
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money
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any asset that can be used in making purchases
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medium of exchange
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an asset used in purchasing goods and services
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barter
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the direct trade of goods or services for other goods or services
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unit of account
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a basic measure of economic value
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store of value
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an asset that serves as a means of holding wealth
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M1
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sum of currency outstanding and balances held in checking accounts
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M2
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all the assets in M1 plus some additional assets that are usable in making payments but at greater cost or inconvenience than currency or checks
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bank reserves
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cash or similar assets held by commercial banks for the purpose of meeting depositor withdrawls and payments
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100% reserve banking
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a situation in which banks reserves equal 100% of their deposits
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reserve-deposit ratio
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bank reserves divided by deposits
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fractional-reserve banking system
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a banking system in which bank reserves are less than deposits so that the reserve-deposit ratio is less than 100%
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Federal Reserve System
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the central bank of the US
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Board of Governors
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the leadership of the Fed, consisting of seven governors appointed by the president to staggered 14-yr terms
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Federal Open Market Committee
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the committee that makes decisions concerning monetary policy
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open-market purchase
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the purchase of government bonds from the public by the Fed for the purpose of increasing the supply of bank reserves and the money supply
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open-market sale
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the sale by the Fed of government bonds to the public for the purpose of reducing bank reserves and the money supply
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open-market operations
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open-market purchases and open-market sales
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discount window lending
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the lending of reserves by the Federal Reserve to commercial banks
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discount rate
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the interest rate that the Fed charges commercial banks to borrow reserves
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reserve requirements
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set by the Fed, the minimum value of the ratio of bank reserves to bank deposits that commercial banks are allowed to maintain
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banking panic
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an episode in which depositors, spurred by news or rumors of the imminent bankruptcy of one or more banks, rush to withdraw their deposits from the banking system
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deposit insurance
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a system under which the government guaranties that depositors will not lose any money oven if their bank goes bankrupt
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velocity
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a measure of the speed at which money circulates
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quantity equation
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money times velocity equals nominal GDP; M*V=P*Y
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formula for bank deposits
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bank deposits = bank reserves / desired reserve-deposit ratio
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formula for money supply
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money supply = currency held by public + bank deposits
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formula for velocity
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V = value of transactions(nominal GDP) / money stock
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When you use money to pay for a movie ticket, you are using money as a(n) __________.
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medium of exchange
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When a Toys "R" Us manager posts prices on a new kids toy she is using money as a(n) __________
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unit of account
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__________ is the sum of currency outstanding and balances held in checking accounts.
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M1
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If you take $100 from your savings account and deposit the money in your checking account __________.
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M2 remains the same
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If the reserve-deposit ratio is 20%, the bank can loan out __________.
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80% of its deposits
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Currency held by public is $200 million, bank reserves are $50 million, and the desired reserve-deposit ratio is 10%, what is the money supply?
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$700 million
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What does the Fed use to manipulate the money supply?
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1)open market operations
2)discount rate 3)reserve requirements |
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An open market sale of government bonds to the public _______.
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decreases money supply.
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Compared to M2, the velocity of M1 is __________.
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higher
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According to the quantity equation, money times velocity equals __________.
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nominal GDP
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