Chapter 10 Flashcards
(25 cards)
What are the three functions of money?
Medium of exchange, Unit of account, Store of value
What is a medium of exchange?
Means of pmt
What is a unit of account?
Consistent measure of value
What is a store of value
holds value over time
What is commodity money?
has intrinsic value
Example of commodity
Silver, gold
What is fiat money
declared by gov to be legal tender
Examples of fiat money
currency, checks
What is the money supply?
the total quantity of money in the economy
What is liquidity
ease of converting assets to cash
WHat is M1?
Currency in circulation
What is M2
M1 plus savings
What is a financial intermediary?
institution connecting savers and borrowers
What is a bank?
accepts deposits, makes loans, offers checking accounts
What are reserves?
cash in vaults or with Fed reserve
What is fractional reserve banking?
reserves are less than claims against them
What are required reserves?
minimum reserves banks must hold
What are excess reserves?
reserves exceeding the required amount
What is the deposit multiplier?
maximum potential change in deposits based on reserve changes
What is deposit insurance
FDIC guarantees deposits up to $250k
What is the discount rate?
Interest rate for loans from the fed to banks
What is the federal funds market?
banks lend reserves to each other
What is the federal funds rate?
interest rate in this mrkt
What are open mrkt operations?
buying/selling gov bonds to influence reserves and money supply
