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ECO2013 > Lectures 19 and 21 > Flashcards

Lectures 19 and 21 Flashcards

1
Q

What is money?

A

A (near) perfectly liquid asset

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2
Q

What are the functions of money?

A

Medium of exchange
Unit of Account
Store of value
Standard of deferred payment

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3
Q

What function of money solves the “double coincidences of wants” problem?

A

Medium of Exchange

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4
Q

What does unit of account mean?

A

A common belief as to what a dollar is worth

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5
Q

What does the store of value mean?

A

The ability to save the value and spend it at a later time

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6
Q

What does the money supply refer to?

A

to the total amount of money in circulation

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7
Q

What are the two measures of the money supply?

A

M1 and M2

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8
Q

What is included in M1?

A

Cash and coins
Checking account deposits
Travelers’ checks

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9
Q

What does the M1 measure of supply need to be?

A

perfectly spendable

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10
Q

What is the smallest measure of the money supply?

A

M1 measure of money supply

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11
Q

What is in the M2 measure of the money supply?

A

Everything in M1
Savings account deposits
Time deposits
Money market mutual funds

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12
Q

What are the depository institutions?

A

commercial banks
credit unions
savings banks

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13
Q

What kind of banking do commercial banks use?

A

Fractional reserve banking

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14
Q

Who (partially) owns credit unions?

A

Account holders

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15
Q

What are the roles of depository institutions?

A

Create liquidity
Pool Risk
reduce cost of borrowing
reduce cost of monitoring borrowers

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16
Q

What is monetary policy?

A

changing interest rates/money supply

17
Q

Who conducts monetary policy?

A

The central bank (The federal reserve)

18
Q

What is the makeup of the Federal Reserve System?

A

board of governors
12 reigional Federal Reserve Banks
Federal Open Market Committee

19
Q

How many governors are on the Board of Governors?

A

7

20
Q

All governors on the B.G serve __ year ___ terms

A

14 year, nonrenewable terms

21
Q

Why aren’t the governors terms renewable?

A

To reduce political influence

22
Q

Who appoints the chair of the federal reserve?

A

POTUS

23
Q

How long is the term of the chair of the federal reserve?

A

4 years, renewable

24
Q

How many regional Federal Reserve banks are there?

A

12

25
Q

What makes up the Federal Open Market Committee?

A

7 governors, NY federal reserve president, 4 other reserve presidents on a rotational basis

26
Q

What are the roles of the Central Bank?

A

Conduct monetary policy
Serve as the bankers’ bank
Serve as a lender of last resort

27
Q

What happens when a country dollarizes (besides adopting another country’s currency)

A

The central bank of the dollarizing country loses control of monetary policy

28
Q

What are two ways in which a central bank might lose control of monetary policy?

A

Joining a currency union
Dollarizing

29
Q

What are the monetary policy tools?

A

Open market operations
Reserve Requirement
Discount policy

30
Q

What are the open market policies?

A

Transactions that increase or decreases the fed’s reserve rate

31
Q

What kind of open market policies are there?

A

Open market purchases and open market sales

32
Q

What happens if the reserve requirement is lowered for commercial banks?

A

Suppliable loans increase

33
Q

What is the monetary base?

A

All cash and coins plus all bank reserves

34
Q

What kind of monetary policy is open market purchases?

A

Expansionary

35
Q

What grows with a money market purchase?

A

The monetary base and the money supply grows by more

36
Q

What happens during a money market purchase?

A

Federal Reserve purchases a non-money asset from a depository institution
The Fed pays by increasing the banks reserve balance
The monetary base grows

37
Q

What do open market sales do?

A

Shrink the size of the monetary base and money supply

38
Q

What kind of monetary policy are market sales?

A

Contractionary

39
Q
A

ECO2013 (3 decks)

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