Chapter 12 Flashcards
(11 cards)
Consists of currency and all checkable deposits commercial banks and savings institutions
M1
Explain the three basic functions of money
1) medium of exchange- enables buying and selling goods and services
2) unit of account- society uses monetary units, dollars
3) store of value- enables people to transfer purchasing power from present to future
More broadly defined money supply equal to M1 + non checkable accounts small time deposits and individual money market mutual funds
M2
Definition of money supply that includes monetary balances immediately available at zero cost to households and businesses
MZM
How much of US economy’s money supply is coins paper money and check able deposits
2-3% coins
46% paper money
52% check able deposits
Three determinants of the value of money
1) Acceptability- people except paper money as a medium of exchange because we are confident that it will be exchangeable
2) legal tender- Government declares it has value for making purchases
3) relative scarcity- with a reasonably constant demand for money the supply of money will determine its purchasing power
What is the board of governors of the Federal Reserve system
It is the central authority of the US money and banking system it’s seven board members are appointed by the president and confirmed by the Senate
12 member group that determines the purchase and sales policies of the Federal Reserve Banks in the market of US
Federal open market committee
Federal Reserve Banks perform a sensually the same functions for banks and through us as those institutions perform for public
Bankers banks
The 12 Federal Reserve Banks are a blend of private and public ownership each is owned by private commercial banks
Quasi-public banks
What is the most important function of the Federal Reserve system
Controlling the money supply
