chapter 6 book notes

Question 1

money

Answer 1

anything that is generally acceptable in making exchanges

Question 2

barter

Answer 2

trading without use of widely accepted means of exchange

Question 3

double coincidence of wants

Answer 3

when exchange fro barter this must be present

Question 4

functions of money

Answer 4

medium of exchange
unit of account
store of value

Question 5

commodity money

Answer 5

money for other uses

Question 6

flat money

Answer 6

when money doesn’t have other uses

Question 7

liquidity

Answer 7

ease with which an asset can be converted to standard form

Question 8

M1

Answer 8

paper currency held outside bank
checking account balances
travelers checks

Question 9

monetary policy

Answer 9

fed use to effect the economy

Question 10

federal open market committee

Answer 10

conducts monetary policy: board of governors, president of new york fed reserve bank, president of other 7 district banks, four of whom vote at each meeting on a rotating basis

Question 11

3 tools of monetary policy

Answer 11

open market operations
required reserve ratio
discount rate

Question 12

open market operations

Answer 12

buying and selling bonds from individual and businesses who previously bought from US government

Question 13

required reserve ratio

Answer 13

fed requires % of deposits that banks can’t lend out

Question 14

discount rate

Answer 14

last resort. last stop bank makes emergency loan before it fails. when bank borrows from fed it pays interest rate called discount rate

Question 15

federal funds rate

Answer 15

free market rate banks lend to other banks

Question 16

value of dollar in domestic economy

Answer 16

depends on how many and which goods and services it will buy

Question 17

consumer price index

Answer 17

weighted average of prices of 200 goods typical consumers buy

Question 18

PCE price index

Answer 18

personal consumption expenditures index; excludes food and fuel- 20% of household purchases