some letters Flashcards
What three functions does money serve?
medium of exchange, unit of account/standard of value, store of value/wealth
What does an economist mean when he/she talks about M1, M2, and M3?
M1- currency and coins, checkable deposits.
M2- M1 plus savings accounts, small time deposits, money market mutual funds.
M3- M2 plus large time deposits.
What is the transactional demand for money?
money is used as a medium of exchange, not affected by interest rates
What is the asset demand for money?
money as a store of value, varies with the interest rate
How are transactional and asset demand related to changes in the interest rates?
transactional is not affected by interest rates
How do the money (financial) markets determine an equilibrium interest rate?
where transactional demand and asset demand meet
What are financial intermediaries?
firms that take funds received from depositors and lends the funds to third parties
What are some examples of financial intermediaries?
banks, savings and loan associations, credit unions, mutual savings banks
What are the three main purposes of a central bank?
issue a common currency, depository of federal government funds, control bank lending and the money supply
What was the 1913 Glas-Owen Bill?
established the 12 federal bank districts with the 7-member board of governors
What is the Federal Reserve System (FED), and why is it important to monetary policy?
our solution to our lack of a central bank, compromise between state and national govt
What are the major parts of the FED?
board of governors, federal open market committee, 12 federal reserve banks, commercial banks, thrift institutions
Where is the Federal Reserve Bank that serves Ohio located?
Cleveland
What is the difference between federal chartered bank and a state chartered bank?
state chartered banks are authorized to operate by state governments
What agencies regulate nationally chartered banks?
federal government, FDIC
What are the functions of the FED?
regulate money supply, supervise commercial banks, issue currency, act as a banker’s bank, provide for check collection
What is a bank’s balance sheet?
A = L + OE
What are the major assets of an average bank?
loans and securities
What are the major liabilities of an average bank?
savings and time deposits, demand deposits
What is a fractional reserve system?
financial intermediaries maintain reserves equal to only a portion of their deposits
What is a primary deposit?
represents new reserves brought into the banking system