Econ-Chapter 6A

Question 1

Bastiat says

Answer 1

it is absolutely necessary to forget money, coins, bank notes, and the other media by which products pass from hand to hand, in order to see only the products themselves, which constitute the real substance…. Money makes its appearance only to facilitate the arrangement among several parties

Question 2

money

Answer 2

is anything that is generally acceptable in making exchanges

Question 3

barter

Answer 3

trading without the use of widely accepted means of exchange

Question 4

double coincidence of wants

Answer 4

to exchange with barter there must exist this

Question 5

Smith lists the following tools that evolve into money

Answer 5

• labor(the original common medium of exchange)
• cattle
• salt
• cowry
• cod
• tobacco
• sugar
• iron
• copper
• cold and silver

Question 6

strangest form of money ever used

Answer 6

rai stones

Question 7

us prisoners used cigarettes as money but now use

Answer 7

notably mackerel

Question 8

a good is more likely to evolve into money if it fulfills the following..

Answer 8

functions of money

Question 9

functions of money

Answer 9

medium of exchange
unit of account
store of value

Question 10

commodity money

Answer 10

money might have other uses

Question 11

fiat money

Answer 11

money may not have any use

Question 12

The wellspring of all US dollars are in

Answer 12

the federal reserve system and the banking system

Question 13

liquidity

Answer 13

the ease with which an asset can be converted to spendable form

Question 14

M1

Answer 14

the most referenced measurement, commonly thought of as money

Question 15

M1 is the sum of

Answer 15

paper currency held outside the banks
checking account balances
travelers checks

Question 16

The US Federal Reserve

Answer 16

creates every UD dollar that exists, was established in 1913 to stabilize the banking system through being a lender of last resort to troubled banks

Question 17

The economists belief the Fed caused

Answer 17

the great depression

Question 18

the fed doesn’t depend on____ for a budget

Answer 18

congress, it finances itself

Question 19

US was suppose to be represented by

Answer 19

12 district banks

Question 20

Government interests are represented by the board of governors which includes

Answer 20

• seven governors, appointed by the president with the advice and consent of the senate, who serve fourteen year terms
• a chairman, who is appointed by the US President every four years, who must also face confirmation by the US Senate

Question 21

through monetary policy..

Answer 21

the fed uses the money supply to attempt to affect the economy

Question 22

Federal Open Market Committee; conducts monetary policy

Answer 22

-the board of governors
-the president of the New York Federal Reserve Bank
The Presidents of the other eleven district banks, four of whom vote at each meeting on a rotating basis

Question 23

the three tools of monetary policy are

Answer 23

• Open Market Operations
• The required reserve ratio
• the discount rate

Question 24

Open Market Operations

Answer 24

buying and selling US government bonds from individuals and businesses who previously bought them from he US government

Question 25

When the Fed buys bonds, bonds flow into the Fed and money flows into the economy,

Answer 25

increasing the money supply, and vice versa

Question 26

The Required Reserve Ratio (Deffiniton)

Answer 26

The fed sets the required reserve ratio, which is the percentage of deposits that banks cannot lend out, but must hold as reserves

Question 27

the required reserve ratio

Answer 27

-a banks reserves consists of its vault cash plus the banks account with the Fed
-Excess reserves are reserves that banks hold in excess of those the Fed requires
-at any point in time the bank can lend out its excess reserves
-the current require reserve ratio is 10%
-with a lower ratio, banks can lend more,and vice versa
this creates new money

Question 28

the Fed is NOT part of the money supply, while money in households and business accounts

Answer 28

ARE apart of the money supply

Question 29

Discount Rate

Answer 29

When a bank borrows from the Fed it pays an interest rate called this, which the Fed sets by command

Question 30

In creating money the Fed’s target is the

Answer 30

Federal Funds Rate, which is a free market rate at which banks lend to other banks

Question 31

The Fed prefers to use

Answer 31

open market operations, rather than the other two tools

Question 32

Money expands through the banking system through the process of

Answer 32

lending, relending, and more relending

Question 33

Money simplifies the exchange by

Answer 33

giving a common unit of account

Question 34

Value of the dollar in the domestic economy

Answer 34

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

Question 35

Consumer Price Index

Answer 35

the measurement is a weighted average of the prices-weighted by the amounts of the goods that consumers purchase

measured by the Bureau of Labor Statistics

Question 36

PCE price index (Personal consumption expenditures index)

Answer 36

excludes food and fuel

measured by the Federal Reserve