Econ 310 Exam One

Front 1

money

Back 1

anything that is widely acceptable as payment for goods and services and as repayment for debt

Front 2

wealth

Back 2

the total collection of pieces of property that serve to store value

Front 3

income

Back 3

flow of earnings per unit of time

Front 4

medium of exchange

Back 4

used to pay for goods and services

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transaction cost

Back 5

time spent paying for goods or services

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unit of account

Back 6

used to measure value in an economy

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store of value

Back 7

must store purchasing power over time

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liquidity

Back 8

the ease and speed at which an asset can be converted into a medium of exchange

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hyperinflation

Back 9

inflation rate exceeds more than 50% a month

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commodity money

Back 10

money made up from valuable commodities

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fiat money

Back 11

paper money decreed by governments as legal tender

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money aggregates

Back 12

measure of the money supply

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M1

Back 13

currency; travelers checks; demand deposits; other checkable deposits

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m1 currency

Back 14

paper money and coins in the hands of the nonbank public and does not include cash in ATMs or bank vaults

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m1 travelers checks

Back 15

only travelers checks not issued by banks

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m1 demand deposits

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business checking accounts that do not pay interest, and travelers checks issued by banks

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m1 other checkable deposits

Back 17

interest bearing checking accounts held by households

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m2

Back 18

m1 + assets that have check writing features( money market deposit accounts and money market mutual fund shares), savings deposits, small denomination time deposits

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m2 savings deposits

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nontransaction deposits than can be added to or taken out of at anytime

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m2 small denomination time deposits

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certificates of deposit with a denomination of less than 100,000 that can be redeemed only at a fixed maturity date without a penalty

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m2 money market mutual fund shares

Back 21

retail accounts on which households can write checks

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m2 money market deposit accounts

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similar to money market mutual fund shares but issued by banks

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greshams law

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bad money will drive out the good

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representational currency

Back 24

currency units that have little or no commodity value, but explicitly represent commodity value

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quantity theory of money

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theory of how the the nominal value of aggregate income is determined, theory for the demand for money

interest rates have no effect on the demand for money

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velocity of money

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average amount of times per year a dollar is spent in buying the total amount of goods and services produced in the economy.

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velocity equals

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P x Y / M, regarded as constant

or Y/L(i,Y)

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P x Y

Back 28

nominal gdp or aggregate nominal income

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equation of exchange

Back 29

M x V = P x Y

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demand for money

Back 30

M^d = k x PY

Front 31

price level equation

Back 31

M x V / Y

Y constant

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inflation equation

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%change P = change M + change V(constant) - change Y

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QTOM long run and short run

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good theory of inflation in long run, but not the short run

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liquidity preference framework

Back 34

real money balances negatively related to nominal interest rate and positively related to real income

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liquidity equation

Back 35

M^d/P = L(i,Y)

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federal reserve banks

Back 36

12 main banks with other branch cities

9 directors each

owned by private commercial banks in the district (banks have purchased stock in FRB)

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FRB functions

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clear checks, issue currency, discount loans, research, liaison between private and FRS, evaluate mergers

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member banks

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all national banks are required to be part of the fed, all depository institutions had to keep deposits at the fed

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board of governors

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7 members, appointed by president, form monetary policy, sets reserve requirement

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FOMC

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board of governors + 5 presidents of the FRB (new york always included)

deal with open market operations and federal funds rate

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open market operations

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purchase and sale of governement securities that affect interest rate and amount of reserves.