Macro Economics Chapter 14 Power Point Flashcards
What will I learn in this chapter?
The three functions of money, definitions of money, and organization and services of the Federal Reserve System.
What is barter?
The direct exchange of one good for another good, rather than for money.
What is the problem with barter?
It requires a coincidence of wants.
What is money?
Anything that serves as a medium of exchange, unit of account, and store of value.
What is the advantage of money?
The use of money simplifies and therefore increases market transactions.
What are the functions of money?
•Medium of exchange•Unit of account•Store of value
What is a medium of exchange?
The primary function of money to be widely accepted in exchange for goods and services.
What is a unit of account?
The function of money to provide a common measurement of the relative value of goods and services.
What is a store of value?
The ability of money to hold value over time.
What does it mean that money is liquid?
It is available to spend in exchange for goods and services without any additional expense.
Are credit cards money?
No, credit cards fail to meet the store-of-value criterion and are therefore not money.
What is the best level of scarcity for money?
The supply of money must be great enough to meet ordinary transactions needs, but not be so plentiful that it becomes worthless.
What are other properties of money?Money must be …
•portable•divisible•uniform•acceptable
What is commodity money?
Anything that serves as money while having market value in other uses.
Is our money backed up by gold or silver?
No, our paper money was exchangeable for gold until 1934, and in 1963 Congress removed the right to exchange $1 bills for silver.
What is fiat money?
Money accepted by law and not because of redeemability or intrinsic value.
What makes our dollar bills fiat money?
All our bills claim that “This note is legal tender for all debts public and private”
What does legal tender mean?
Legally dollar bills cannot be refused as payment for a debt.
What is M1?
The narrowest definition of the money supply. It includes currency, traveler’s checks, and checkable deposits.
What is currency?
Money, including coins and paper money.
What are checkable deposits?
The total of checking account balances in financial institutions convertible to currency “on demand” by writing a check without advance notice.
What is M2?
The definition of the money supply that equals M1 plus near monies, such as savings deposits and small time deposits of less than $100,000.
What distinguishes M1 from M2?
M1 is more liquid than M2.
What is the Federal Reserve System?
The 12 Federal Reserve district banks that service banks and other financial institutions within each of the Federal Reserve districts.
What is the Board of Governors of the Fed?
The seven members appointed by the President and confirmed by the U.S. Senate.
How long do board members serve?
They serve for a non-renewable fourteen-year term.
What is the responsibility of the board?
To supervise and control the money supply and the banking system of the U.S.
What is the chairman of the Board of Governors?
The President designates one member of the Board to serve as chair for a renewable four-year term.
Who is Ben Bernanke?
Chairman of the Board of Governors of the Fed.
What is the Federal Open Market Committee (FOMC)?
The FOMC is the Fed’s committee that directs the buying and selling of U.S. government securities.
What is the purpose of the FOMC?
To increase the money supply if we have unemployment and decrease it if we have inflation.
What is the Federal Advisory Council?
12 prominent commercial bankers who advise board members, but who do not have voting rights.
What percent of all deposits reside in member banks?
About 70%
What does a Federal Reserve Bank do?(6 actions)
•Controls the money supply•Clears checks•Supervises and regulates banks•Maintains and circulates currency•Protects consumers•Maintains federal government checking accounts and gold
What is the Federal Deposit Insurance Corporation (FDIC)?
The FDIC is a government agency established in 1933 to insure commercial bank deposits up to a specified limit.
What is the Monetary Control Act?
A 1980 law that gave the Fed greater control of nonmember banks and makes all financial institutions more competitive.
What is the Financial Services Modernization Act?
A 1999 law that allows banks, securities firms, and insurance companies to merge.
