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25 Cards in this Set

  • Front
  • Back

Double Co-incodence

When a person wants to find someone who wants what they have and is selling what the person wants.

Functions of money

1) Medium of money

2) Unit of Account

3) Store of Value

Money is

The most liquid asset

Fiat Money

-Government declared currency

-No intrisnic value

-Rest of the world uses fiat money

Measure of the Dollar

M1: currency, deposits (checking only), travelers checks

M2: Includes M1, time deposits, saving deposits, money market accounts (all must be small)

Roles of Federal Reserve

1) Regulted banks (deposits > $14 M)

2) Lender of last resort

3) Control the quantity

Lender of last resort

Federal bank lends to banks who cannot secure over nigh loans for other banks so they main in business

Quantity of money in the economy

Money Supply

Federal Reserve Structure

1) Board of Structure

2) 12 federal banks

3) Policy Making Body

Board of Structure

-7 members - 14 year term

-nominated and confirmed by president and senate

Policy Making Body

-"Federal Open- Market Committee"- FOMC

-Voting Members

~Board of Governers (7)

~Federal Bank Presidents (4)

~NY bank President (1)

~10 total

~meet every 6 weeks on Tuesday

Controlling the Money Supply

1) Set required reserve supply

2) Discount Rate

3) Open Market Operation

Required Reserve Supply

10 % (big banks= >104 M)

3 % (smaller banks= 15-104 M)

Discount Rate


Open Market Operation

buys/sells government securities on the market

Another Word for Securities

Treasury Bills

How banks create money

-Transforms reserves into loans

- Base money(Monetary Base) is currency and reserves

-Money Supply is currency and deposits

Currency Drain

-when people and firms hold on to currency rather than deposits

-if currency goes up, means banks are holding more cash

Reserve Ratio (r) Equation




Monetary Base (MB) Equation

Currency + reserve

Money Supply (MS) Equation

currency + deposit

Simple Money Multiplier Equation

1 excess + reserve

------- or --------------------------

reserve deposit


Currency (c) Equation




Change in MS Equation

change in reserve x (1/r)

Complex Money Multiplier Equation

1 + currency 1+c

--------------------------------- -----------

currency + reserve ratio c+r