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28 Cards in this Set

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d: money
asset that is widely used as a means of payment
d: means of payment
anything that can be used to buy something
total money supply=
cash in the hands of the public
checking account deposits
traveler's checks
M1 is equal to
cash, checkable deposits, traveler's checks
types of checkable deposits
demand deposits
automatic transfers
M2 is equal to
M1 + all additional deposits
traditionally, the money supply is
M1
economists look at M ? to determine trends
M2
what are the three functions of money
1) unit of account
2) means of payment
3) store of value
d: unit of account
money can be used to compare the prices
the way we think about money
d: store of value
we can hold our wealth in money
the method we pay
d: commodity money
items than have actual value that serve as a means of payment
d: fiat money
items issued by a government that have no actual value in itself, but have value because the government says so
why are financial intermediaries beneficial
combine loans from multiple households together
spread the risk associated with borrowing
knows the market from experience
balance sheet
ASSETS - LIABILITIES
assets are
the amount of cash on hand at the bank
what the bank owns
liabilities are
the amount of cash the bank owes
the deposits in a bank are owed because they will have to be payed back
d: bonds
promises by government or corporation to pay you back plus interest at a later date
d: loans
promises by a household/business to pay the bank back at a later date + interest in exchange for money now
d: required reserve ratio
the legally required amount of money that the bank has to hold required by the federal reserve
why might banks want to hold excess reserves
1) the interest rates might increase suddenly, so banks might want to loan out more money
2) in a recession more loans are defaulted so banks need to make up for this by having excess money
d: shareholder's equity
total assets- total liabilities
used to balance the balance sheet
The Fed: Board of Governors
7 members
14 year term
members appoint by the pres, confirmed by congress
1 chairman, 4 year term appointed by president
The Fed: The Board of Directors for the Branches
12 Branches
each has its own Board of Directors
3 members appointed by the Board of Governors
6 members appointed locally
directors choose a president
The Fed: "member banks"
part of the federal reserve system
nationally or state chartered
how does the fed increase the money supply
open market purchase of bonds
what are other ways the Fed can increase the money supply
1) decrease the RRR, more money to loan
2) decrease the discount rate, more money to loan
what are other ways the Fed can decrease the money supply
1) increase the RRR, less money to loan
2) increase the discount rate, banks must pay back loans