Monetary System (Block 3) Flashcards

Final (Chapter 16)

1
Q

Medium of exchange

A

Money facilitates transactions by serving as a widely accepted intermediary.

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2
Q

Unit of account

A

Money provides a common measure of value for goods and services.

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3
Q

Store of value

A

Money retains its purchasing power over time, allowing for saving and deferred consumption.

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4
Q

Standard of deferred payment

A

Money enables contracts to be written for future transactions, where payments can be made in the future.

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5
Q

M1

A

Narrow money supply including currency, demand deposits, and other liquid assets.

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6
Q

M2

A

Broader money supply including M1 plus savings deposits, small-denomination time deposits, and money market mutual funds.

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7
Q

Reserve requirement

A

The percentage of deposits that banks must hold as reserves.

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8
Q

Reserve ratio

A

The ratio of reserves to deposits held by banks.

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9
Q

Money multiplier

A

The factor by which a change in reserves will change the money supply, calculated as 1 divided by the reserve ratio.

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10
Q

Open market operations

A

The buying and selling of government securities to control the money supply.

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11
Q

Discount rate/discount loan

A

The interest rate at which banks can borrow directly from the Federal Reserve.

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12
Q

Reserve requirement

A

The percentage of deposits that banks must hold as reserves.

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13
Q

Interest on reserves

A

The interest rate paid by the Federal Reserve on reserves held by banks.

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14
Q

Federal fund rate

A

The interest rate at which banks lend reserves to each other overnight.

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