Money and Inflation

Question 1

Commodity Money

Answer 1

Objects that have value in themselves and that are also used as money. Example: Gold

Question 2

Federal Reserve

Answer 2

The central banking system of the United States. Created in 1913, it has 12 member banks.

Question 3

Fiat Money

Answer 3

Money without intrinsic value that is used as money because of government decree. Example: Paper Money

Question 4

Fractional Reserve Banking

Answer 4

A banking system that keeps only a fraction of funds on hand and lends out the remainder.

Question 5

Reserve Ratio

Answer 5

Reserves/Deposits

Question 6

Available money for lending.

Answer 6

Deposits - (Reserve Ratio*Deposits)

Question 7

Inflation

Answer 7

A general and progressive increase in prices.

Question 8

CPI (Consumer Price Index)

Answer 8

A measure of the overall cost of the goods and services bought by a typical consumer.

Question 9

Nominal Price

Answer 9

Price not adjusted for inflation.

Question 10

Price Index

Answer 10

A measurement that shows how the average price of a standard group of goods changes over time.

Question 11

Purchasing Power

Answer 11

The ability to purchase goods and services.

Question 12

Quantity of Money Equation

Answer 12

MV=PY

Question 13

Real Interest Rate

Answer 13

The interest rate adjusted for inflation.

Question 14

Real Interest Rate Equation

Answer 14

R=I - pi

Question 15

Real Price

Answer 15

Price adjusted for inflation.

Question 16

Real Wage Rate

Answer 16

The wage rate adjusted for inflation.

Question 17

Real Wage Rate Formula

Answer 17

Real Wage=Nominal Wage−(Nominal Wage x Inflation Rate)

Question 18

The Federal Reserve exists to….

Answer 18

Fight inflation and unemployment.

Question 19

Three functions of money

Answer 19

Storer of value, unit of account, and medium of exchange.

Question 20

The three tools the Feds use to fight inflation

Answer 20

Reserve Requirement Ration, Discount Rate, and Open Market Operations.