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37 Cards in this Set

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