chapter 6 Flashcards
What is money?
anything that is generally acceptable in making exchanges
double coincidence of wants
with barter, one must find someone who both has what he wants ans wants what he has
how does money evolve from barter?
eventually, in barter, some goods become more acceptable in making exchanges
functions of money
Medium of Exchange. Unit of account. Store of value.
what is the wellspring of all US dollars?
The Federal Reserve and the banking system
Commodity money
money that may have other uses i.e. labor, cattle, salt, etc.
fiat money
money that has no other use
liquidity
the ease with which an asset can be converted to spendable form
M1
the sum of paper currency held outside banks, checking account balances, and traveler’s checks. $3 trillion dollars now.
Why was the Fed created?
Created in 1913 to stabilize the banking system through being a lender of last resort to troubled banks and prevent banking crises. Now creates every US dollar in existence.
How is the Fed financed?
it finances itself
Who runs the Fed?
The Board of 7 governors are appointed by the President for 14 year terms. The Chair of the Fed is a 4 year term. and they are confirmed by the Senate
What was the Fed’s early record like?
not good. they caused huge deflation that resulted in the Great Depression
What are the 3 tools of monetary policy?
Open Market operations. The required reserve ratio. Discount rate
What does the Federal Open Market Committee do and who is the Committee made up of?
It conducts monetary policy. It is composed of the Board of Governors (7 members), The President of the New York Federal Reserve Bank, and the Presidents of the other 11 district banks, 4 of which vote at each meeting on a rotating basis.
