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27 Cards in this Set
- Front
- Back
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Which of the following represents the basic functions of money? |
Standard of value, store of value, and medium of exchange |
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According to the fractional reserve principal |
A bank needs only a fraction of a dollar in reserves for each dollar of checkable deposits |
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The original purpose of the federal reserve was to |
Act as a lender of last resort |
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Today, the primary function of the federal reserve is to |
Stabilize the economy by regulating the money supply |
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When the Federal Reserve increases the reserve requirement |
The lending ability of banks tends to contract |
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If the federal reserve desires to increase the lending ability of banks, it would |
Buy government securities |
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According to the Keynesian model, if the Fed wanted to counter recessionary pressures, which of the following combinations of policies should it pursue? |
Decrease the reserve requirement, decrease the discount rate, and buy government securities |
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what is money? |
the set of assets in an economy that people use to buy goods and services from another |
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What is commodity money? |
money that takes a form of a commodity with intrinsic value. EX: gold, silver, cigarettes |
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What is Fiat money? |
money that is used as money because of government decree. Does not have intrinsic value. EX: Coins, currency, check deposits |
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what does medium of exchange mean? |
an item that buyers give to sellers in exchange for goods and services (Replaces traditional barter) |
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What is standard of value? |
the value of money, the prices set for goods and services |
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what is store of value? |
an item used to transfer purchasing power from present to future. (Interest) |
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M1? |
Cash, coins, checkable deposits |
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M2? |
Savings, stocks, bonds, mutual funds.... |
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What is liquidity? |
the ease with which an asset can be converted into the economy's medium of exchange (Cash) |
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What is the Federal Reserve? |
serves as central bank, oversees banking system, regulates quantity of money in economy |
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3 functions of federal reserve |
1. regulates banks 2. makes loans to banks (lender of last resort originally) 3. controls money supply |
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What does the Federal Open Market Committee? |
Policy making branch of fed reserve, monetary policy, reserve requirement, discount rate, Sell/buying of bonds |
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What is the main open-market operation |
Buying and selling government bonds |
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In a recession, Federal Reserve should? |
+money supply - reserve rate - Discount Rate (id) Buy Bonds |
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In inflation, Federal Reserve should? |
- money supply + reserve rate + Discount Rate (id) Sell Bonds |
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The existence of money enables us to avoid barter. In this capacity, money is functioning as a |
Medium of exchange |
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Money makes it possible to easily compare the prices of different products with one another. In this capacity, money is functioning as |
A standard of value |
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Open market operations involve |
The buying and selling of government securities or bonds by the federal reserve |
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According to the Keynesian model, if the Fed wanted to reduce inflationary pressures, which of the following combinations of policies should it pursue? |
Increase the reserve requirement, increase the discount rate, and sell government securities |
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Equilibrium GDP would tend to increase if the Fed pursues an expansionary monetary policy by |
Lowering the reserve requirement |
