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42 Cards in this Set
- Front
- Back
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what are the three functions of money
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-medium of exchange
-store of value -measure of value |
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what is M1 made up of
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currency and checkable deposits
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what is the main reason that M1 is considered money
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it is accepted in exchange for goods and services
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what is the legal tender?
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you dont have to accept cash in exchange for goods and services
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fiat money means that...
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the government has declared it money
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purchasing power of the dollar. Domestically we look at the consumer price index and
-when it goes up... -when it goes down... |
-value of the dollar goes down
-value of the dollar goes up |
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people use money as a store value only when...
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there is no sizable deterioration in value of that money because of inflation
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stabilization of the value of money requires...
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stabilization of prices and intelligently managed monetary policy
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the main determinate of transactions is...
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nominal GDP
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demand for money
-transactions require |
the demand for money as a medium of exchange
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assets vary _________ with
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inversely
the rate of interest |
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advantage of assets
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safe and liquid
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disadvantage of assets
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earn no or little interest
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how do consumers attempt to make up for the decline in the supply of money
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by selling assets
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where do banks put their money
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federal reserve
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the federal reserve can do anything for a bank that
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a bank can do for you
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do commercial banks handle the majority of financial services
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no
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within the fractional reserve system...
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only a portion of checkable deposits are backed up by cash
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what are the two basic functions of a commercial bank
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-take deposits
-loan money |
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the specified percentage of checkable deposit liabilities that a commercial bank must keep on reserve is referred to as the
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reserve ratio
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why might a bank have more deposited with the feds than is required by the reserve ratio
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they dont want to be over-drawn with the feds
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what is the main reason the feds require reserves
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to control how much money a bank can loan out
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what is the effect of a check drawn from one bank and deposited into another
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it will deduce both reserves and checkable deposits
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when a bank makes a loan...
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it creates money
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what is the effect on MI from paying off a loan
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destroys that money it created from making the loan
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when commercial banks buy and sell from the govt...
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reserves are raised and lowered
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when commercial banks buy and sell from the public...
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M1 is created and destroyed
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the multiplier formula is used to
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ascertain the amount of M1 that can be created by a checkable deposit
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when the discount rate is lowered...
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banks are encouraged to borrow from the feds
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when the discount rate is raised...
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banks are discouraged to borrow from the feds
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when feds provide loans to commercial banks it (2)...
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-increases reserves
-enhances their ability to make loans |
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what is the major focus of monetary policy
recently it has become |
discount rate
open market |
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what are the tools of the govt
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spending and taxes
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what are the tools of the feds (3)
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-discount rate
-reserve ratio -open market operations |
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in tight money policy they try to
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make money harder to get to cool the economy
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what are the three ways to conduct tight money policy
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-raise discount rate
-raise reserve ratio -sell govt securities |
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what are the three ways to conduct easy money policy
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-lower discount rate
-lower reserve ratio -buy govt securities |
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in easy money policy they try to..
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make money easier to get to heat up the economy
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what are the two key advantages of monetary policy over fiscal policy
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-quicker and flexible
-free from political pressure |
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what is a dominant component of US national stabilization policy
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monetary policy
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these arent part of M1 and no M1 is created with them
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credit cards
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these dont increase M1 but are still part of M1
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debit cards
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