Unit 5 Test Prep Flashcards

1
Q

barter system

A

goods and services are traded directly
ex: a farmer trades pineapples to another farmer for broccoli

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2
Q

money

A

anything that is generally accepted in payment for goods or services

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3
Q

wealth

A

total collection of assets that store value

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4
Q

income

A

a flow of earnings per unit of time

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5
Q

commodity money

A

based on an item (silver, gold, diamond, shells, etc) that has value to a society

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6
Q

representative money

A

something (usually paper currency) can be exchanged for something else (normally a precious metal)

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7
Q

fiat money

A

somethign that serves as money but has no other important uses. the government says it has value, so it does

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8
Q

scarce (limited supply)

A

money must not be easily reproduced

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9
Q

portable

A

money must be easily transported

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10
Q

divisible

A

easy to make change

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11
Q

durable

A

something that will last a long time

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12
Q

uniform

A

consistent in size and shape

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13
Q

the board of governors

A

the FED is overseen by 7 board member board of governors. appointed by the president to 7 year terms

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14
Q

federal reserve district

A

12 federal reserve districts with one federal reserve bank per district

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15
Q

member banks

A

all banks (wells fargo, bank of america, etc). reports to the fed

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16
Q

money creation

A

the process by which money enters circulation (loans)

17
Q

required reserve ratio

A

the money banks hold back and can not be loaned out

18
Q

money multiplier

19
Q

reducing RRR

A
  • make more loans and free up reserves for banks
  • increase the money multiplier. increase in money supply
20
Q

Increasing the RRR

A

-banks must hold more money in the reserve. shrinks money supply

21
Q

discount rate

A

the interest rate that banks pay to borrow money from the fed

22
Q

reducing discount rate

A

fights unemployment

23
Q

increase discount rate

A

fights inflation

24
Q

bonds and interest rates

A

inversely related because of markets

25
liquidity
ease with which an asset can be accessed and converted into cash
26
M1( high liquidity)
coins, currency, and checkable deposits
27
M2 (medium liquidity)
M1 plus savings deposits, time deposits, and mutual funds below 100,000
28
M3(low liquidity)
M2 plus time deposits over 100,000
29
Money Demand Shifters
- change in price level - change in real gdp output - change in transaction costs
30
supply of money
set by the board of governors of the Fed
31
shifters of money supply
- shifting the RRR - discount rate - open market operations (buying and selling bonds)
32
money supply and discount rate
-decrease money supply = increase discount rate - increase money supply = decrease discount rate
33
bonds
- big bucks (increase money supply) = buy bonds - small bucks (small money supply) = sell bonds
34
real interest rate
percentage increase in purchasing power that a borrower pays (adjusted for i flatiron) real=nominal -expected inflation - you want to loan out with an i retest rate higher than expected inflation to get real profit nominal = real + expected inflation
35
buyers and sellers
buyers: want low prices sellers: want high prices agree in the middle
36
borrowers and savers
- Borrowers (CIGXe): consumers, businesses, governments, foreigners (exports) - savers: banks, fed, individuals, savers