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macro > exam 3 > Flashcards

exam 3 Flashcards

1
Q

commodity money

A

currency that has value in and of itself ie gold coins

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2
Q

fiat money

A

currency with no inherent value, value is attributed ie debit card

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3
Q

medium of exchange

A

currency’s ability to be used to buy and sell goods and services

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4
Q

unit of account

A

money is a measurement of value

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5
Q

store of value

A

money can be saved and used in the future

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6
Q

nominal value

A

value printed on money

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7
Q

real value

A

what money can buy

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8
Q

real sector

A

produces goods and services

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9
Q

financial sector

A

creation, exchange, and valuation of financial assets such as money, stocks, bonds
- makes it possible to hold wealth in assets and obtain financing like loans

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10
Q

double conciousness of wants

A

for bartering to work, both parties must want what the other has at the same time

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11
Q

requirements of an effective currency

A

durable, portable, divisible, widely accepted, value is easily determined

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12
Q

liquidity

A

how fast, easily, and reliably can asset can be converted to cash

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13
Q

money 1 (M1)

A

(liquid) currency + demand deposits (checking accounts), other checkable deposits

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14
Q

money 2 (M2)

A

(less liquid) M1 + small value time deposits + savings deposits + money market deposits + money market mutual funds

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15
Q

financial intermediary

A

aquires funds from savers and lends to borrowers, reduces information costs, reduces transaction costs, banks can tolerate a small number of failed loans

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16
Q

bond

A

buyer promises to pay the bondholder interest payments + predetermined value of a bond at its maturity date

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17
Q

stocks

A

exchanges money for partial ownership of a company

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18
Q

liability

A

what banks owe to their customers

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19
Q

assets

A

deposits into a bank
- money is destroyed wen loans are paid
- its profitable to give out as many loans as possible, but it must be limited to customers who can actually pay them

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20
Q

The Federal Reserve

A

central bank of the US
- use money supply to influence interest rates

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21
Q

board of governors

A

Seven members appointed by the president and confirmed by the Senate
for a single 14-year term

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22
Q

Federal Open Market Committee

A

Composed of the Board of Governors and five of the 12 regional bank
presidents (with the New York Fed president as a permanent member)
Meets 8 times a year
decides on monetary policy

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23
Q

Functions of Regional Fed Banks

A

Provide a nationwide payments
system including clearing checks and Fedwire and FedNow funds transfer system
Distribute coins and currency
Regulate and supervise member banks
Serve as the banker for the U.S.Treasury

24
Q

twin goals (dual mandate) of the Fed

A

economic growth with low unemployment and stable prices with moderate long-term interest rates.

25
Q

how the Fed influences interest rates

A

FOMC sets federal funds range -> policy implementation ->
affects market interest rates and overall financial conditions
influences consumer and producer spending ->
progress toward dual mandate

26
Q

reserve balance accounts

A

checking accounts banks hold within the Fed

27
Q

federal funds transaction

A

transfer of funds from banks reserve account at the Fed to another

28
Q

federal funds rate

A

interests on loans between banks in the Fed, Fed sets a range and can manipulate it, but cannot set it
affects all other interest rates

29
Q

interest on reserve balances (IORB)

A

interest accrued on banks reserve balance, set by the Fed
“floor” of interest rates

30
Q

discount rate

A

interest rate set by the fed to banks borrowing from the Fed
“ceiling” of interest rates

31
Q

how the fed influences AD-AS

A

Fed affects the interest rate, and thus investment

32
Q

expansionary monetary policy

A

reduces interest rates, which leads to greater
aggregate demand and investment, shifting
the AD curve to the right

33
Q

contractionary monetary policy

A

raises interest rates, which leads to lower aggregate demand and less investment, shifting the AD curve to the left

34
Q

transparency and the Fed

A

In 1994, the Fed began releasing a statement whenever it changed interest rates
policy is less effective when people are uncertain about what the Fed does

35
Q

monetary policy lags

A

information, decision, recognition, and implementation like fiscal policy
- Fed avoids legislative delays
- monetary policy takes ~12-18 months to be effective

36
Q

pro rules

A

discretion leads to arbitrary decisions and may cause instability with lags

37
Q

pro discretion

A

economy is too complex for set rules, discretion is useful in extreme economic shocks

38
Q

inflation rule

A

setting target inflation rate (2%)

39
Q

monetary growth rule

A

increasing money supply by set percentage each year consistent with dual mandate

40
Q

taylor rule

A

Federal funds target rate = 2 + current inflation rate + ½(inflation gap) + ½(output gap)

41
Q

inflation

A

general increase in price level

42
Q

deflation

A

general decrease in price level

43
Q

consumer price index (CPI)

A

measures a weighted average of consumer prices
CPI core excludes volatile prices of food and energy

44
Q

Personal Consumption Expenditure Price Index (PCE)

A

The weights in the index can change when consumers substitute from some goods and services to other and it is more
comprehensive, so it is used by the Fed.
PCE core excludes volatile prices of food and energy

45
Q

causes of inflation

A

demand factors: consumer confidence, income, and wealth
supply shocks: price fluctuations on items
monetization of debt: the central bank buying government debt to make
it easier for the government to sell the
debt

46
Q

hyperinflation

A

inflation ~over 50% a month
typically caused by excessive government spending over tax revenues and the printing of money to finance deficits

47
Q

phillips curve

A

if policymakers use expansionary policy to reduce unemployment below the natural rate, they must be willing to accept higher inflation
*not always the case

48
Q

FDIC insurance

A
  • Established by 1933 Banking Act
  • insures deposits in savings accounts up 250k
49
Q

certificate of deposit

A

time deposit
- penalty charge if funds are withdrawn before period, but interest rates are higher than savings

50
Q

savings account

A

pro: highly liquid, low risk because funds are insured
con: low or no interest rate

51
Q

401k

A

retirement accounts available through large companies, allows you to save money pre-tax + additional funds from employer

52
Q

pensions

A

employer continues to make paychecks after retirement

53
Q

IRA (individual retirement account)

A

traditional (PRETAX (TAX-
DEFERRED) CONTRIBUTIONS
THAT CAN BE
INVESTED. TAXES
PAID UPON
WITHDRAWAL) or Roth (AFTER-TAX
CONTRIBUTIONS.
NO PENALTY
FOR EARLY
WITHDRAWAL.
NO TAXES ON
EARNINGS.
long term, tax advantaged savings account

54
Q

social security

A

funded by payroll tax
- minimum age to collect is 62, but payments increase if one waits until 67
- benefits are calculated by one’s lifetime contributions

55
Q
A

macro (3 decks)

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