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44 Cards in this Set
- Front
- Back
Whatever serves as the medium of exchange.
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Money
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Has substantial value in the nonmonetary uses. Ex: gold, silver, pigs, horses, etc.
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Commodity Money
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Without substantial value in nonmonetary uses. Ex: dollar bills
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Fiat Money
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How is money measured? M1
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M1= Currency in circulation + Checking Accounts
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How is money measured? M2
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M2= M1 + Savings and time deposits + Money market mutual funds
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Refers to the ease with which it can be converted into cash.
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Asset's liquidity
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Money Supply Formula
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Ms= CU + D
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What does Money Supply affect?
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Aggregate Demand & the economy
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a system under which banks keep only a fraction of their deposit funds as reserves.
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Fractional Reserve Banking
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many depositors withdraw cash from their accounts all at once.
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Bank Run
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implemented by FDIC; is designed to prevent bank runs.
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Deposit Insurance
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Banks keep portions of their deposits in cash or the equivalent.
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Reserves
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Actual Reserves =
AR = |
Required Reserves + Excess Reserves
RR + ER |
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the minimum amount of reserves required by law.
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Required Reserves (RR)
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Required Reserves =
RR = |
Required reserve ratio x Deposits
rr x D |
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any reserves held in excess of the legal minimum.
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Excess Reserves (ER)
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Net worth =
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Assets - Liabilities
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Assets =
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Liabilities + Net Worth
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Money Multiplier =
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1/rr
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Change in D=
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(Change in initial deposit) x 1/rr
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Since Ms = CU + D, then Change of Ms=
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Change of CU + Change of D
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Simplified Money Multiplier Formula=
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Change of Ms= (Change in initial ER) x 1/rr
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An open market purchase by the Fed will lead to a ______ in the price level and a ________ in GDP.
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rise; rise
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If a bank has $1,000,000 in reserves and checking depoists of $3,000,000, what is the bank's reserve position if the required reserve ratio is 10 percent?
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The bank has $300,000 of required reserves and $700,000 of excess reserves.
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Which of the following might limit the money creation process to an amount less than the full potential amount? increased lending by banks, banks holding some excess reserves, business deman for loans, increased use of credit cards, or the public using checks instead of cashes.
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Banks holding some excess reserves.
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Which one of the following will lead to a right shift in the money demand schedule?
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an increase in real GDP
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If you have a student loan with your bank, the loan is a(n)
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asset to the bank and a liability of yours.
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Fiat money is
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backed only by government decree.
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Fractional reserve banking takes its name from the fact that banks
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keep only a fraction of their total deposits on reserve.
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Both real GDP and the price level will be expected to fall if the Federal Reserve
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raises the federal funds rate, raises the required reserve ratio, and increases the discount rate.
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If the Fed reduces the required reserve ratio, the money supply will _____ and the interest rate will _______.
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increase; fall
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The banking system receives a new cash deposit of $100,000. Total deposits eventually rise by $500,000. The value of the required reserve ratio is
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0.20
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The Fed conducts an open market purchase of Treasury bills of $30 million. If the required reserve ratio is 0.25, what is the maximum change in the money supply?
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$120 million
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Bank 1 receives a new checking deposit of $30. What will be the initial increase in bank 1's excess reserves as a result of a new deposit? Assume the required reserve ratio is 20%.
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$24
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Money market mutual funds as part of _____ are ______ liquid than checking deposits.
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M2; less
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To close an inflationary gap in an economy, which monetary policy response is appropriate?
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An increae int he interest rate
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If the Fed conducts an open market sale of T-bills, it increases the supply of T-bills in the open market. How will this affect the price of T-bills and the interest rate?
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T-bill prices fall and interest rates rise.
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Which of the following will increase interest rates in the short run?
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a rise in the price level.
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When Archie deposits $50 cash to her checking account, from the immediate effect of this single transaction,
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the money supply does not change.
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The Federal Funds rate
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is the rate at which banks lend to each other overnight.
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To reduce bank reserves and ultimately the money supply, the Federal Reserve can adopt which one of the following?
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Conduct an open market sale.
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Bankers tend to _____ lending during an economic boom, which would _____ the economy's inflationary gap.
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increase; increase
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The principal difference between income and money is that income is a ______ and money is a _______.
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flow; stock
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Members of the Board of Governors of the Fed are
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appointed by the President for 14-year terms and confirmed by the Senate.
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