Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics > Money and Banking > Flashcards

Money and Banking Flashcards

1
Q

Money

A

The set of assets in an economy that people regularly use to buy goods and services from other people.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Double Coincidence of Wants

A

Limitations on economies as a result of transaction costs in a barter economy. Ex: Musician will play for free if it covers living expenses without needing money to “pay for rent”

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Commodity Money*

A

Money that takes the form of a commodity with intrinsic value. Gold, silver, cattle, sheep, horses, assets

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Fiat Money

A

Money without intrinsic value that is used as money because of a government decree

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Medium of exchange

A

an item that buyers give to seller when tye want to purchase goods and services [typically something everybody accepts for exchange for all items; easily accessible

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Unit of Account

A

The common way (common denominator) in which market values are measured in an economy.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Store of Value

A

An item that people can use to transfer purchasing power form the present to the future [something that holds its value]

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Money Revisited

A

Severs society in three functions: medium of exchange, unit of account, store of value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Types of Money

A

Currency, Demand Deposits, Savings Deposits, Money Market Funds, Certificate of Deposit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Currency

A

The coins and paper bills in the hands of the public

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Demand Deposits

A

Deposits in banks that are available by making a cash withdrawal or writing a check

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Savings Deposits

A

Bank accounts where you can’t withdraw money by writing a check, but can withdraw the money at a bank - or can transfer it easily to a checking account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Money Market Funds

A

Where the deposits of many investors are pooled together and invested in a safe way like short-term government bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Certificate of Deposit (CD) - or Time Deposit

A

Mechanism for the saver to deposit funds at a bank and promise to leave them at the bank for a time, in exchange for a higher rate of interest.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Measuring Money

A

M0 - High powered money, M1, M2

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

M0

A

High powered money - Currency and bank reserves (cash held by banks; deposits held by commercial banks with central bank)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

M1

A

A definition of the quantity of money (money “out there”) includes: currency, traveler’s checks, demand deposits, and other checking accounts

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

M2

A

Definition of the quantity of money that includes M1, but also savings deposits, money market funds, certificates of deposit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Financial Intermediary - Bank

A

An institution that operate between a saver with financial assets to invest and an entity who will receive those assets and pay a rate of return

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Bank - Financial Intermediary Revenue and Expenses

A

Revenue: Interest payments, other fees and charges
Expenses: Interest payments to depositors; loans that are not repaid; operating costs- taxes, employees, equipment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Assets

A

Items of value by a firm or an individual

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Liabilities

A

Amounts/Debts owned by a firm or an individual

23
Q

Bond

A

Financial contract through which a borrower (corp, city, stage, fed) agrees to repay the amount that was borrowed and also a rate of interest over a period of time in the future

24
Q

Reserves

A

Funds that a bank keeps on hand and that are not loaned out or invested in bonds

25
Q

Net Worth

A

Total assets minus liabilities (bankruptcy if < 0)

26
Q

Fractional-Reserve Banking

A

Banking system in which banks hold on a fraction of deposits as reserves

27
Q

Reserve Ration

A

Fraction of deposits that banks hold as reserves

28
Q

Reserve Ratio

A

Government policy through the reserve requirement

Bank policy when the bank decides to hold excess reserves above and beyond the reserve requirement

29
Q

Money Multiplier

A

Amount of money the banking system generate with each dollar or reserves

30
Q

Quantity of Money

A

Let R be the reserve rate in an economy

  • Money Multiplier is the reciprocal of the reserve ration, 1/R
  • Total quantity of money is the original quantity of reserves times 1/R
31
Q

Quantity of Money Equation

A

Q(M) = Q(R) x 1/R

32
Q

Bank Capital

A

Resource a bank’s owners have put into the institution

33
Q

Leverage and Leverage Ratio

A

Leverage is the use of borrowed money to supplement existing funds for purposes of investment. The leverage ratio is the ratio of assets to bank capital

34
Q

What are the three functions served by money?

A

Medium of exchange, unit of account, store of value

35
Q

What distinguishes money form other assets in the economy?

A

The liquidity of money

36
Q

What are demand deposits and why should they be included in the money supply?

A

Deposits in banks that are available by making a cash withdrawal or writing a check. Useable cash as well as money that the bank can loan out to borrowers.

37
Q

How do banks create money?

A

Money multiplier effect and financial intermediary

38
Q

Why don’t banks hold 100 percent reserves?

A

??? Money multiplier and can loan out deposits to earn interest and distribute that interest back to the depositors

39
Q

What is the formula for money multiplier?

A

QMoney = QReserves x 1/Ratio

40
Q

Role of the Federal Reserve

A

1Regulate banks and ensure the health of the banking system

2Control the quantity of money

41
Q

Options to Control the Quantity of Money

A

1Open market operations
2Reserve requirements
3Lending to banks
4Quantitative easing

42
Q

Open Market Operations

A

Increase or decrease quantity of money - Tool used most often

43
Q

Increase money supply

A

Bond traders at New York Fed buy bonds from the public
Dollars the Fed pays increase the number of $ in the economy
Held as currency, bank deposits. Increases bank reserves and increases lending

44
Q

Decrease money supply

A

Public pays in dollars, reducing hte number of $ in circulation
As people withdraw deposits from banks to pay for bonds, banks find themselves with lower reserves reducing their lending.

45
Q

Reserve requirements

A

Affect the reserve ratio and thus the money multiplier
Rarely used as it disrupts the business for banking. With higher reserve requirements, banks will curtail lending until they have built up higher reserves

46
Q

Lending to banks

A

Increase banks’ reserves by lending reserves to banks
Borrow at the discount rate
Fed can change the money supply by altering this discount rate

47
Q

Quantitative Easing

A

Fed makes discount rate loans broadly available to many financial firms, not just to banks
Firms/banks bid for loans anonymously
Fed bouth financial securities directly MBS

48
Q

Problems in Controlling Money supply

A

Fed does not cotrol the amount of money households choose to hold as bank deposits - More deposits, more money the banking sector can create (money multiplier)
- Less Money, lower reserves and less they will lend
Fed does not control the amount bankers choose to lend

49
Q

Money Demand

A

An increase in Y causes an increase in money demand, other things equal. The money demand curve is downward sloping

50
Q

How is a central bank different from a typical commercial bank?

A

Central bank does not receive interest, but sets the Fed bank rate

51
Q

Explain how to use an open market operation, reserve requirements, and the discount rate to expand the money supply

A

Open Market Operation: Adjust monetary supply and allow market to react
Reserve Requirements: Adjust reserve requirements to alter money multiplier/change lending habits
Discount Rate: Adjust to alter reserves and money supply

52
Q

Why can’t the Fed control the money supply perfectly?

A

Can’t control how the banks lend

Can’t control how the …..

53
Q

Explain how the money supply affects the interest rate

A

Increase money supply and interest rate decreases - supply and demand

Economics (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions