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Flashcards in CH 13 Deck (20)
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What are the three uses of money?

--Unit of Account (Measures Worth)
--Means of Payment (for Goods and Services)
--Asset (Store of Value)


Define "Money"?

An asset widely accepted as a Means of Payment
--To buy goods and services--


What is M1?

Money Supply=

Cash held in the hands of the public
+Checking Account Deposits
+Travelers Checks


What are Reserves?

Cash in Vaults and ATM's + in accounts with the Fed


What is the required reserve ratio (RRR)

The minimum fraction of CHECKING (only) account balances that banks must hold as reserves


How many districts are in the Fed system? Who supervises and regulates these districts?

12 Districts; Each with their own District Bank.

Supervised by the Board of (7) Governers who appoint 3 Directors of each District Bank.


What is the FRS? What year was it founded?

Federal Reserve System: The monetary authority of the US, charged with creating and regulating the nation's supply of money. (US Central Bank)

--Founded in 1913 when it was created by Congress, Not a part of any branch of Government!


What is the unit of account in the US?

The dollar!


What is the Board of Governers in charge of? What do they get to set?

In charge of the FRS. 7 Members that are appointed by the President and Confirmed by the senate.

---They decide the Reserve Requirement and the Discount Rate---


What are the functions of the Fed?

Supervising & Regulating Banks
Acting as a "Bank" for Banks
Issuing Paper Currency
Check Clearing
Guiding the Macro Economy
Dealing with Financial Crisis


What is the FOMC? How many people are on it? What does it control?

The Federal Open Market Comittee.
7 Governers and 5 Reserve Bank Presidents

--Controls the Money Supply and Interest Rates--


What are the two types of Open Market Operations?

Open Market Purchase & Open Market Sale of Government Bonds.

--Changes the Supply of Money--


What is a Bond?

A promise to pay back borrowed funds, issued by a corporation or government agency


How does an Open Market Purchase affect the money supply and the interest rate?

OMP: Fed purchases their bonds, Increasing the money supply and Lowering the Interest Rate


How does an Open Market Sale affect the Money Supply and the Interest Rate?

OMS: Fed sells their bonds, decreasing the Money Supply and Increasing the Interest Rate.


What is the Money Multiplier? Give the formula.

The number by which we multiply the injection of reserves to get the total change in Money Supply

1/Required Reserve Ratio (RRR)
x Change in Reserves
= Change in Money Supply


When is a Bank declared Insolvent?

Bank Failure is when its total Assets are less than the total Liabilities. (Also, Negative SE)


What is the FDIC?

Federal Deposit Insurance Corporation
-- Insurance for banks that insures a person's deposit in the bank fails
---(decrease panics and runs)


What is included in a Banks Balance Sheet?

Total Assets and Total Liabilities/Stockholders Equity


What is the "Discount Rate"

The interest rate that the Fed charges banks on loans it gives to the Banks.