Chapter 9 Flashcards
anything that is accepted as means of payment
money
most economists agree that money has three principle purposes (functions)
- medium of exchange
- provide measure of value
- provide a store of value
the direct exchange of one good for another good without a standard form of money passing from hand to hand
barter
enables us to measure the value or cost of a particular good against the values of other goods
money
six characteristics that should be found in money
- portability (easily carried about)
- durability (slow to wear out)
- homogeneity (standard, recognizable appearance)
- divisibility (available for use in both small and large units)
- constancy (stability in value)
- intrinsic valuableness (worth something in its own right, aside from being recognized as money)
T/F: many forms of money that have been used throughout history of the world have possessed all six characteristics of money
False
few forms of money
advantage of bartering
buyers need not have a money system
need not use cash which they wish to preserve or other purposes
coined, metallic money
specie
when people cannot trust the value of a form of money, they will save for themselves forms of money that seem more stable and valuable and will spend forms of money that seem less valuable
Grasham’s Law
the asserted value of something
face value
when the level of prices in the market rises because too much money is in circulation
inflation
if prices decrease because money seems more valuable and stable
deflation
term for when government deliberately lowers quality and value of coins
debased
any form of money that has been declared a valid means of payment
legal tinder
gold, silver, platinum usually found in the form of bars, ingots, or plats
bullion
a system which allows banks to hold less than 100 percent of deposits in reserve
fractional reserve banking
legal tender that is backed by nothing but a government’s money
fiat money
the three categories that economists break up our nation’s money supply
M1
M2
M3
the category most often referred to
most narrowly defined
M1
checks________ money
ARE NOT
assets that can easily be converted into M1 because they are highly liquid
near-monies
the two categories of money that are often called near-monies
M2
M3
category that consists of M1 plus noncheckable savings deposits, money market mutual funds an similar deposits and time deposits less than $100,000
M2
time deposits worth over $100,000 are included in the category
M3
established during President Washington’s administration
is the source of part of the American money supply
United States Department of the Treasury
the majority of America’s money supply is under the control of a central banking network called the
Federal Reserve System
an independent agency that does not answer directly to the citizens of the United States
Federal Agency
three main components that make up the core of the Federal Reserve System
Board of Governors
Federal Open Market Committee
Federal Reserve Banks
members of the Federal Reserve System’s __________________ are appointed by the President and confirmed by the US Senate
Board of Governors
the Board of Governors’ duty it to
operate America’s banking system
component of the Federal Reserve System that makes decision regarding the buying and selling of government securities (Treasury notes, bills, and bonds)
Federal Open Market Committee
component of the Federal Reserve System that influences the policies of the private commercial banks with which you are familiar
Federal Reserve Banks
the chief aim of the Federal Reserve System is to
- form America’s monetary policy
- control the money supply
three main tools that enable the Federal Reserve System to increase or decrease the amount of money in circulation
open market operations
reserve ratios
discount rates
a period, usually six months or longer, during which the economy declines
recession
implies that more funds are in circulation through the ready approval on loan applications
easy money
a conservative monetarist
Milton Friedman
the theory that the variation in the money supply is the main source of economic fluctuations
monetarism
Friedman became associated with the theory of
monetarism
the root of all evil
love of money
______________ in itself is neither good nor evil
money
