money

Question 1

3 functions of money

Answer 1

1. medium of exchange
2. store of value
3. unit of measure of worth

Question 2

types of money (3)

Answer 2

1. commodity money (backed by gold, silver)
2. paper money (gold standard)
3. fiat money (not backed by shit)

Question 3

m0 (monetary base)

Answer 3

currency in circulation + bank reserves

Question 4

m1

Answer 4

currency in circulation + demand deposits + other liquid assets

Question 5

m2

Answer 5

M1 + savings deposits + retail money market funds

Question 6

fisher effect

Answer 6

rir = nir - inflation

positive relationship between nominal interest rate and inflation

Question 7

nominal interest rate (R) on a bond represents…?

Answer 7

return on $

Question 8

real interest rate (r) on a bond represents…?

Answer 8

return in consumption goods

Question 9

using a credit card costs…?

Answer 9

MC = P(1+q)

Question 10

money demand is…? (2)

Answer 10

1. increasing in real income
2. decreasing in the nominal interest rate

Question 11

ways to increase money supply (3)

Answer 11

1. reduce taxes
2. open market operations (sell bonds)
3. increase government spending

Question 12

classical dichotomy

Answer 12

real activity is completely separated from nominal variables

Question 13

3 markets

Answer 13

1. labor market
2. goods market
3. money market

Question 14

2 primary assets

Answer 14

1. money
2. nominal bonds

Question 15

nominal bond (definition)

Answer 15

sells for one unit of money in the current period & pays off 1 +R units of money in the future period

Question 16

liquidity trap

Answer 16

contradictory situation in which interest rates are very low but savings are high

Question 17

solutions to liquidity trap (2)

Answer 17

1. quantitative easing
2. negative nominal interest rates

Question 18

quantitative easing

Answer 18

purchases of long-maturity government debt and private assets