Chapter 6 Flashcards
Money
Anything that is generally acceptable in making exchanges
Barter
Trade without using money
To exchange with barter this must exist
Double Coincidence of Wants
3 Functions of Money
- Medium of Exchange: generally acceptable & convenient to trade
- Unit of Account: each unit of it is “worth” same amount
- Store of Value: retains value over time
Commodity Money
Money having other uses
Fiat Money
Money might not have any other use
Liquidity
The ease with which an asset can be converted to spendable form
M1:
Most referenced measurement. Sum of:
- paper currency held outside balances - checking account balances - Traveler's checks
Monetary Policy
Fed uses money supply to attempt to affect the economy
Federal Open Market Committee
Conducts monetary policy.
What composes the federal open market committee?
- Board of Governors (7)
- President of New York Fed Reserve Bank
- Presidents of other 11 district banks
3 Tools of Monetary Policy:
- Open Market Operations: buying & selling gvt bonds
- Required Reserve Ratio: percentage of deposits bank cannot lend out
- Discount Rate: interest rate paid to Fed for borrowing money
Bank’s Reserves
Consist of vault cash plus bank’s account with Fed
Excess Reserves
Reserves that banks hold in excess of those the Fed requires
Federal Funds Rate
Free market rate at which banks lend to other banks
