Money, Monetary Policy, Banking Flashcards
What are the 3 functions of Money?
Medium of Exchange, Store of Value, Standard of Value
Medium of Exchange
Accepted as payment for G & S
Store of Value
Can be held for future purchases
Standard of Value
Serves as a yardstick for measuring the prices of goods and services
What are the 3 types of Money?
Commodity Money, Bank Money, Fiat
Define Liquidity
the ease with which something can be converted into the most widely accepted and easily spent from of money, cash, with little or no loss of purchasing power.
Essential Functions of Banks
- Banks transfer money from savers to spenders by lending funds (excess reserves) held on deposit. 2. The banking system creates additional money by making loans in excess of total reserves.
Contraints on Banks Lending Ability
- Bank Deposits 2. Willing Borrowers 3. Willing Lenders 4. Government Regulations
Monetary Policy
The use of money and credit controls to influence macroeconomic activity. It is a central responsibility of the Federal Reserve.
Functions of the Federal Reserve
- Issues Federal Reserve Notes 2. Sets Reserve Requirements 3. Lend Money to Banks 4. Check Collection Services 5. Fiscal Agent for the Federal Government 6. Supervises Banks 7. Regulating Money Supply
Monetary Policy Tools
- Reserve Requirement 2. Discount Rate 3. Securities Sale 4. Discount Window Lending
What are the four main components of Aggregate Demand?
- Consumption 2. Investment 3. Net Export Spending 4. Government Spending
Reasons we Demand Money
- Transaction Motive 2. Speculative Motive 3. Precautionary Motive
Factors that Affect the Demand for Money
- Nominal Interest Rates 2. Real Output 3. Price Level
Factors that Affect the Supply of Money
- The amount of currency the public chooses to hold 2. The supply of Bank Reserves 3. The reserve deposit ratio maintained by commercial banks
