Econ monetary Flashcards
great depression
bc of contraction of money supply
characteristics of money
hard to copy durable portable divisable limited acceptable
functions of money
medium of exchange
store of value (inflation)
standard of value for comparison
M0
cash/coin
M1
M0, demand deposit/check
M2
M1 n small saving account
show stock of money
liquidity
ability to take form of cash quickly. If npt liquid can’t sell or turn into money
monetary policy
alter supply of money/interest rates to help econ
discount rate
interest rate that banks are charged when borrow from FED
weakest tool
recession: lower DR
Inflation: raise DR
banks usually charge higher if used
reserve requirement
% of deposits that banks must hold onto n not loan (10%)
most powerful tool
open market opration
buying/selling gov bonds to give banks money supply
most important
recession: buy bonds n lower interest rate
inflation: sell bonds to decrease money supply
increase supply of money= increase demand
if demand is higher than supply=inflaion
if supply is lower than demand: recession
settlement
money from one’s account to bank
fed fund rate
interest rate that BANKS pay another BANKS for an overnight loan
lower rates of loans by
buying bonds= lower fed fund rate= lower prime rate
vice versa
