Money

Question 1

2 historical systems of money

Answer 1

-Barter system (exchanges)
-Monetary system

Question 2

2 types of money + EXS

Answer 2

• commodity money (intrinsic value)
  EX gold, cigarettes
  -fiat money (no intrinsic value, based on faith)
  EX dollar bills coins

Question 3

Fiat money explanation

Answer 3

run on faith between sellers and buyers, no intrinsic value

Question 4

3 functions of money

Answer 4

-stock value
Value can be used in the future
-unity of account
determines value of things
-medium of exchange
used between buyer and seller

Question 5

Liquidity def

Answer 5

ease with which asset is converted into the economy’s currency

Question 6

2 measures of money

Answer 6

M1: Currency, demand deposits
M2: Saving deposits, mutual funds

Question 7

Central bank 4 roles

Answer 7

-creates currency
-controls quantity of money
-controls transfers and exchanges
-sets regulations

Question 8

Federal reserve system 2 policies

Answer 8

-regulatory policies
-monetary policies

Question 9

4 causes of M increase due to monetary policy

Answer 9

-Banks make more loans than they pay back
-Banks print more money
-Currency deposit ratio decrease (people deposit more)
-Reserve ratio decrease (banks have less in reserve)

Question 10

Reserve ratio def

Answer 10

amount of money held in reserve (required reserve + exceeded)

Question 11

Currency deposit ratio def

Answer 11

amount of money people keep vs deposit

Question 12

Money multiplier def

Answer 12

amount of money in the system for each dollar created

Question 13

What happens to reserve ratio and currency deposit ratio when money multiplier increases

Answer 13

when money multiplier high
-reserve ratio decreases
-currency deposit decreases

Question 14

What happens to reserve ratio and currency deposit ratio when money in reserve increase

Answer 14

-reserve ratio increases
-currency deposit increases
-money multiplier decreases