Money And The Economy Flashcards
Some money has value just by itself such as what?
Gold coins
Some money has value because a government says it has value such as what?
Fiat currency in the US
Money must be a standard witch which one can measure what?
Value
Over time the value of the dollar ________, but the value must remain fairly ___________.
Changes
Consistent
When economist hold the value of the dollar constant for analysis, they refer to the “_______” value.
Real
When the value of the dollar is allowed to change over time it is referred to as a ___________ ________.
Nominal value
Who issues all the currency so the country can freely trade and interact without regional differences in the value?
National Government
If money is printed in vast quantities, it would do what?
Lose value
The amount of money that can be circulated must be ____________ to avoid money losing its value.
Controlled
The most spendable money is called _____ and includes all the coin, currency, and “demand deposits” held in banks.
M1
A deposit that can be accessed without a time restriction is called?
Demand deposit
What is an example of a demand deposit?
Checking account
A deposit that cannot be used instantaneously in a transaction so is considered less liquid is what?
Time deposits
When looking at the amount of demand that can be generated, we are looking at the amount of money that can be spent, which means we are looking at the what money?
M-1 money
Coin and currency account for only half of the M-1 money, the rest is what?
Demand deposits
There can be no control of _________ without a control of __________ bankers that hold demand deposits.
Money
Commercial
If too much money is in the economy people will spend freely and the economy will push up against what? (Then prices will rise)
It’s production frontier
If too little money is in the economy people will not be able to buy goods and services falling below the production frontier. Causing what?
Unemployment
In order for the banker to pay interest, rents, and salaries it’s necessary that the money be used to what?
Generate more money
The banker ________ money around so the bank earns an income and other people have access to needed ________.
Spreads
Funds
When you make a deposit the money can be _______ to others.
Lent
When you make a deposit money is kept on _________ to take care of withdrawals and day-to-day operations.
Reserve
When you make a deposit money can be ___________ in interest bearing bonds issued by the federal government.
Invested
Once the banker has enough money in the Reserve, the banker attempts to ___________ profit on remaining money.
Maximize
Riskier loans carries a higher rate of what?
Interest
Risk on loans don’t exist when who is the borrower?
Federal government
The economic benefit of the lending process is the purchase of goods and services which creates what?
Jobs
As successive loans are made money is ___________.
Created
Additional demand deposits are added into what?
M-1
As more and more money is created the value of each dollar may begin to what?
Drop
If not enough money is circulating, banks cut back on loans. Creating less __________ and consequently leading to ______ _______.
Spending
Job loss
We saw the First National Bank in _______, but 40 years later it was not re-charted.
1791
When was the Federal Reserve act that created the central banking system we see today?
1913
Where is the Federal Reserve System headquartered?
Washington D.C.
The Federal Reserve System is divided into _____ district banks.
12
The Federal Reserve System is directed by a board of governors made up of how many people?
7
Board of governors are appointed to non-renewable _____ year terms by the President of the US.
14
There are always ____ people on the Board of Governors with at least ____ years of experience.
6
2
One governor is appointed a ____ year term as chairman.
4
The objective of the Fed is to maintain viable money supply and to ensure __________ credit is available.
Reasonable
The first tool available to the Fed is the power to regulate the amount of __________ every bank must hold.
Reserves
Regulating the amount of reserves every bank must hold restricts the amount of what?
Loans
The Fed can create excess reserves by __________ the reserve requirement.
Lowering
The Fed can destroy excess reserves by ___________ the reserve requirement.
Increasing
What is the reserve requirement today?
10%
Banks reserves may drop below the required level because of wrongful ___________ of its deposits, withdraws and loans by the bank.
Forecasts
The second tool of the Federal Reserve is that it lends funds to banks sufficient to maintain what?
Required reserves
Interest on the funds lent to banks from the Federal Reserve is called what?
Discount rate
The discount rate on a federal loan affects the bankers decisions about the banks loan __________.
Policy
The most powerful tool and the one the Fed relies on is the use of an ________ __________ ___________.
Open Market Operation
When the US Treasury Department needs to borrow money for government spending it does by selling a what?
Government Bond
When a buyer buys a government bond from the US Treasury To find government spending, the buyer is lending to the ____________.
Government
If the buyer of one million dollars worth of bonds is a bank the money comes from where?
Excess reserves
If a banks excess reserves are used to buy bonds, they’re no longer available for what?
Loans
By selling bonds to the public or banks, the Fed can reduce the amount of _________ in the country.
Money
If the Fed wants to increase the money supply, it does so by __________ bonds instead.
Buying
Using the three Fed tools is called what?
Monetary policy
What policy is when the reserve requirement and the discount rate is lowered, and the Fed buys bonds?
Easy money policy
The Fed will rely mainly on the open market ________ _________ rather than the other two tools.
Bond purchase
What policy is when the Fed slows the growth of money by increasing the reserve requirement, increasing the discount rate and sells bonds on the open market?
Tight money policy
The goal of monetary policy is to reduce or increase spending by adjusting the rate of __________.
Interest
The Fed can be very successful at fighting what problem?
Inflation problem
What problem means the signals that high unemployment or high inflation are not always clear?
Recognition lag problem
A second problem is that the Fed is not as successful when fighting what?
Unemployment
When money is available but it’s trapped in the banks as people and businesses chose not to borrow it’s called a what?
Liquidity trap
Anything that can be used to settle debts, transact business and is a measure of value is considered what?
Money
Checking account deposits are called ________ _______ and make up a large share of money in the US.
Demand deposits
What is the central bank in the US which has the responsibility of maintain the integrity of money and stability of the economy?
Federal Reserve System
One of the tools the Fed uses to manage the money in the US is the requirement that banks keep a certain portion of all deposits on hand. This is considered what?
Required reserves
When a bank borrows from the Fed, it must pay interest, called the ________ ______, on the loan.
Discount rate
The Fed buys and sells US Treasury Securities in an effort to manage the money supply through _______ __________ __________.
Open market operations
The use of reserve requirements, discount rates and open market operations by the Federal Reserve System to manage the money supply is known as what?
Monetary Policy
