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AP Economics > Money, Banking And The FED part 1 > Flashcards

Money, Banking And The FED part 1 Flashcards

0
Q

The function of money that allows you to save value of labor to be used at a later date

A

Store of value

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1
Q

What are the three functions of money

A

Act as a medium of exchange, a unit of measure other known as a unit of account, and a store of value

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2
Q

Function of money that allows you to trade for goods and services more easily than bartering

A

Medium of exchange

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3
Q

Function of money that allows you to precisely calculate the value of a good or service in the utility provided

A

Unit of measure or unit of account

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4
Q

What are the two types of money

A

Commodity money and Fiat money

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5
Q

Type of money that has value outside of being money

For example coins made from gold or another precious metal

A

Commodity money

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6
Q

Type of money that has no value outside of being money

Example is paper currency

A

Fiat money

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7
Q

This is the representation of some value

A

Money

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8
Q

What are the characteristics of modern money that makes it a good medium of exchange

A 
Easily divisible
Easily transportable
Durable
Universal acceptance
Difficult to reproduce
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9
Q

The ability of an asset to be used to make purchases in simple terms easy to convert an asset into cash

A

Liquidity

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10
Q

What are highly liquid forms of money

A

Cash checks savings accounts

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11
Q

What are less liquid forms of money

A

Bonds collectibles Stocks jewelry

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12
Q

What does liquidity determine

A

What counts as actual money in the economy

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13
Q

What is liquidity closely connected to

A

Interest rates

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14
Q

Measure that is 100% liquid

A

M1

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15
Q

What all is included in M1

A

Cash, coin, checking accounts, travelers checks

2.8 trillion

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16
Q

Slightly less liquid than M1, earns interest, usually sits for a a while

A

M2

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17
Q

What does M2 include

A

M1, savings accounts, money market accounts, time deposits, money market mutual funds

the above accounts must be less than $100,000
11 trillion

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18
Q

Broadest measure of money

A

M3

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19
Q

What does M3 include

A

M2 plus time deposits over $100,000 and large money market mutual funds

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20
Q

What type is used to buy things and what type is short-term savings

A

M1 to buy, and M2 for short-term savings

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21
Q

What is a pure money what is a near money

A

Pure money is the liquid M1

Near money is an asset that does not function directly as a medium of exchange but can readily be converted into M1
It is M2

22
Q

How many times is each dollar used

A

Multiple times this should not be confused with GDP

23
Q

What is money in relation to economic activity

A

Money influences economic activity it is not equal to it

24
Q

What is fractional reserve banking

A

Keeping a fraction of deposits in reserve to pay back customers

based on old-fashioned gold banking

25
Q

What are the risks in fractional reserve banking

A

Runs on the bank

Make too many loans in search of a irrational profits

Inflation may result from rapid creation of money

26
Q

Things of value that the bank owns

Examples cash, deposits, loans, real estate, reserves

A

Assets

27
Q

Things of value the bank owes

Examples deposits, loans

A

Liabilities

28
Q

Percent of deposits set-aside by law to repay customers

A

Reserves

29
Q

What is the relation between assets and liabilities

A

Assets must exceed liabilities or the bank is in trouble

30
Q

Amount left over after the required reserves this amount can then be loaned out

A

Excess reserves

31
Q

Legal minimum the bank must set aside

A

Required reserves

32
Q

What is this formula for the simple deposit multiplier

A

One over required reserves

33
Q

What are the two critical assumptions that must be made in order for the multiplier to work

A

All money must be redeposited

All excess reserves must be reloaned

34
Q

When determining the new money put into the economy what must be taken into account

A

Subtracting by the initial amount

35
Q

What is the jobs of the Federal Reserve

A

Regulate the financial system
Act as the governments bank
Act as a lender of last resort during a liquidity crisis
Conduct monetary policy by controlling the money supply

36
Q

What does the federal reserve do even though it sits outside of the circular flow

A

Heavily influences the financial/banking sector

Conduct monetary policy

Connects the government to the financial market

37
Q

What is the organization of the Federal Reserve

A

Board of governors

12 district banks

FOMC ( Federal open market committee)

38
Q

Seven members on a 14 year term

Make big picture financial decisions

Yellen is the first woman chair person

A

Board of governors

39
Q

Chosen by member banks

Carry out federal goals/jobs at the regional level

A

12 district banks

40
Q

Most important
Seven governors in five regional presidents one president is always from New York
Make monetary policy decisions control money supply

A

Federal open market committee

41
Q

Altering the money supply to steer economic activity

A

Monetary policy

42
Q

Increase money supply increase GDP decrease unemployment

A

Expansionary monetary policy

43
Q

Decrease money supply decreased GDP decreased inflation

A

Contractionary monetary policy

44
Q

Meet eight times per year to decide what the economy needs moneywise to meet goals maximum output stable prices low unemployment

A

Federal open market committee

45
Q

When it comes to monetary policy what are the tools of the Federal Reserve

A

Reserve requirements

Discount rates

Open market operations

46
Q

This changes the banks reserves and the multiplier

A

Reserve requirement

47
Q

This changes the interest-rate that the federal reserve charges member banks to borrow

A

Discount rate

48
Q

Buying or selling bonds to change the federal funds rate

A

Open market operations

49
Q

What is the most effective tool when it comes to monetary policy

A

Open-market operations

50
Q

What is often used as a signal indicating where the Federal Reserve wants to go in monetary policy

A

Discount rate change

51
Q

Why is the reserve requirement change rarely used except during a huge crisis

A

Yes it is too strong it has a double effect on the monetary base
either adds or subtracts reserves that the banks can use to lend to customers and changes the simple deposit multiplier affecting the amount of money that banks can create

52
Q

What is the federal funds rate

A

The rate the banks charge each other to borrow money

AP Economics (8 decks)

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