Money and Credit Flashcards
Money derives its value for being a medium of …, as a unit of … and a storehouse for …
exchange, measurement and wealth
Everyone has to … money for it to work
trust
Name the two types of money…
Commodity and fiat
commodity money is backed up by a ….
commodity
the commodity it is usually backed up by is …
gold
When was the US dollar taken off gold?
1971
The effects of backing up money to a commodity were…
controlling inflation
not allowing government to increase or decrease the volume of money in the economy.
NO.1 A … currency managed by … is better than letting every … … issue its own notes
national, government, private bank
NO.2 Banks could get away with … most of their … most of the time for significant …
lending out, deposits, interest
Define Fractional reserve Banking system…
Banks put most of our money to work earning a return
Money is created through a commercial bank creating a …
loan
Advantage of creating money - helping consumers and businesses purchase …
capital and consumer goods
Disadvantage - money supply may grow faster than the real economy creating …
inflation
Taking out a loan …
creates money
Paying off a loan ….
destroys money
Name the 3 central banks…
Bank of England
Federal Reserve
European central Bank
Monetary policy sets out 3 things…
Rules and regulations applying to the financial system
Establishment of legal tender
Use of interest rates to restrain or encourage credit
Through influencing the level of … … in the economy, the Bank of England’s monetary policy affects how much … and … want to …
interest rates, households, companies, borrow
The Bank of England wants to affect the volume of money in the economy in order to ….
increase demand and control inflation
