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Econ 104 > ECON CH 10 > Flashcards

ECON CH 10 Flashcards

1
Q

barter

A

the exchange of one good for another

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2
Q

double coincidence of wants

A

the unlikely occurrence that two people each have a good the other wants

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3
Q

money

A

a medium of exchange, a means of payment: what sellers generally accept and buyers generally use to pay for goods and services

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4
Q

three major functions of money

A
  1. medium of exchange
  2. store of value
  3. unit of account
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5
Q

medium of exchange

A

an item buyers give to sellers when they buy G&S

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6
Q

unit of account

A

a standard unit that provides a consistent way of quoting prices and record debts

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7
Q

store of value (saving)

A

an item people can use to transfer purchasing power from the present to the future (to save)

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8
Q

commodity monies

A

items used as money that also have intrinsic value in some other uses (gold, diamonds, cigs)

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9
Q

fiât or token money

A

items designated as money that are intrinsically worthless (the US dollar bill)

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10
Q

money supply

A

the quantity of money available in the economy to cover all the transactions

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11
Q

M1

A

includes currency (cash) in circulation, demand deposits, travelers checks, and other checkable deposits

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12
Q

M2

A

everything in M1 plus savings deposits, small time deposits, money market mutual funds, and a few other minor categories

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13
Q

MS

A

=currency+deposits

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14
Q

no change

A

M1 goes down, what happens to M2

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15
Q

M1

A

also known as transactions money

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16
Q

M2

A

also known as Broad money

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17
Q

M1

A

what is more liquid? M1 or M2?

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18
Q

M2

A

what is more stable? M1 or M2?

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19
Q

financial intermediaries

A

are banks and other financial institutions that act as links between those who have money to lend and those who want to borrow money (commercial banks, life insurance, pension funds, and saving and loan associations)

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20
Q
  1. overseas the banking system

2. makes the monetary policy

A

the FEDs 2 major tasks

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21
Q

monetary policy

A

actions undertaken by the FED to control (change) the supply of money and the cost of money (interest rate) to help stabilize the economy

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22
Q

required reserves

A

the FED requires that banks should hold (not loan out) a certain fraction (of their deposits)

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23
Q

excess reserves=

A

reserves-required reserves

24
Q

required reserves=

A

%required reserve ration X deposits

25
Q

loan up

A

banks make this to the point where its excess reserves are zero

26
Q

excess reserves

A

used by banks to make loans

27
Q

reserve requirement ration (RRR)

A

the fraction (percentage) of deposits that banks hold as reserves with the FED

28
Q

RRR example

A

RRR=10% means that if a bank receive a deposit of $100 then $10 will be hold as reserve and $90, the excess reserve, is loaned out to investors

29
Q

increase in MS

A

an increase in bank reserves leads to a greater that one-for-one increase in what

30
Q

money multiplier

A

the relationship between the final change in MS and the change in reserves that caused this change

31
Q

money multiplier

A

the multiple by which MS can increase for every dollar increase in reserves

32
Q

1/RRR

A

money multiplier formula

33
Q

FED

A

the central bank of the USA

34
Q

lender last resort

A

the FED provides funds to troubled banks that cannot find any other sources of funds

35
Q

open market operations

A

are the purchases and sales by the Fed of gov securities (bills and bonds) in the open market

36
Q

MS goes down

A

when Fed sells bonds, what happens to MS

37
Q

MS goes up

A

when Fed buys bonds, what happens to MS

38
Q
  1. changing the RRR
  2. changing the discount rate
  3. engaging in the open market operations
A

three tools available for the Fed to change the MS

39
Q

RRR

A

establishes a link between banks` reserves and the deposits the commercial banks are allowed to create in the banking system

40
Q

decrease RRR

A

if the Fed wants to increase MS, they increase or decrease RRR (which allows banks to create more deposits by loaning out more money)

41
Q

higher money multiplier

A

a lower RRR means

42
Q

discount rate

A

interest rate that banks pay to the Fed when they borrow money from Fed

43
Q

increases the MS

A

when a bank borrows from the Fed, it increases the reserves in the banking system which does what to the MS

44
Q

increases the MS

A

the lower the discount rate, the lower the cost of borrowing from the Fed, thus banks will borrow more and lend out more, doing what to the MS

45
Q

banks borrow more

A

if the discount rate is down then banks borrow more or less?

46
Q

money eliminates the “double coincidence of wants” problem

A

the development of money as a medium of exchange has facilitated the expansion of economic activity because

47
Q

decrease M1 and not change M2

A

dude transfers $2500 from his checking account to his savings. this transaction will do what to M1 and M2

48
Q

multiply $750 by 30%=$225

A

$750 in deposits and RRR= 30%

49
Q

loaned up

A

when a bank has no excess reserves, and thus can make no more loans, it is what

50
Q
  • discount rate
  • open market operations
  • RRR
A

three instruments used in the Fed to change the MS

51
Q

will increase the MS

A

a decrease in the RRR will do what to the MS

52
Q

buying gov securities in the open market

A

what action by the Fed is designed to increase the MS

53
Q

decrease, decrease

A

an open market sale of securities by the Fed results in ——- in reserves and ——in the supply of money (increase or decrease)

54
Q

bonds go up

A

interest rates go up, what happens to bonds

55
Q

money goes up

A

interest rates go down, what happens to money

Econ 104 (15 decks)

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