Chapter 6- Banking and the Federal Reserve Flashcards
What is the money supply?
the total quantity of money in the economy at any given time.
Why do economist measure the money supply?
to help determine the activity taking place all around us in the economy.
What is the definition of M1- money?
consists of coins and currency, checking accounts and traveler’s checks
what is the definition of M2-money?
it is M1 + small savings accounts, money market funds and small time deposits.
What is the definition of M3- money?
it is M2 + large time deposits, large money market funds and repurchase agreements.
What does liquidity mean?
how easy something can be converted into cash.
Which is most liquid?
M1
M2
M3
M1, M2 then M3
Define Money
the portion of your wealth that you choose to hold in the form of cash or checking accounts instead of other forms of wealth that may yield an income.
What is the demand for money?
the relationship between the quantity of money people want to hold and the factors that determine that quantity.
What are the basic motives for holding money?
- transaction demand for money
- precautionary demand for money
- Speculative demand for money
- portfolio demand for money
What is the demand curve for money?
An illustration economist use to demonstrate the demand for money.
What type of slope does the demand curve for money have?
downward sloping.
What factors lead to a shift in the demand for money curve?
Read GDP (+) Price Level (+) Expectation (-) Transfer Costs (+) Preferences (-)
What year was the federal reserve founded?
1913 by the Federal Reserve Act
Where does the Federal Reserve’s power come from
its ability to issue money.