Econ 203 Flashcards
(32 cards)
What is the relationship between the Central Bank and inflation?
Central Bank actions influence inflation by controlling money supply and interest rates.
Define M1 in terms of money supply.
M1 includes currency in circulation, checkable deposits, and traveler’s checks.
Define M2 in terms of money supply.
M2 includes M1 plus near-monies such as savings deposits, time deposits, and money market funds.
What are near-monies?
Near-monies are found in M2; they are not directly spendable but easily convertible to cash.
What is the FDIC insurance limit for deposits in US banks?
$250,000 per account type.
What is the primary function of money as a medium of exchange?
Money is used in transactions for goods and services.
What does ‘store of value’ mean in economics?
Money retains value over time, allowing individuals to save purchasing power for the future.
Who is credited with the creation of Bitcoin?
Satoshi Nakamoto.
What type of money are paper currencies in the US referred to as?
Fiat money.
What is fractional reserve banking?
Banks hold only a portion of deposits as reserves, lending out the rest.
What is a risk associated with fractional reserve banking?
It is susceptible to bank runs if many depositors withdraw at once.
How are credit cards similar to loans?
Using a credit card is similar to taking out a loan, not equivalent to money in circulation.
What is the most important function of the Federal Reserve?
Conducting monetary policy.
What are open market operations?
The Fed buys or sells government securities to influence the money supply.
What happens when the Fed lowers the discount rate?
It makes borrowing cheaper for banks, encouraging lending and expanding the money supply.
What is the effect of restrictive monetary policy?
It is effective in industries sensitive to interest rate changes, like real estate and construction.
What do equilibrium interest rates reflect?
The intersection of money supply and demand.
How do changes in interest rates affect investment spending levels?
Changes in interest rates affect investment and employment.
What is the goal of the Fed regarding demand-pull inflation?
To reduce aggregate demand through restrictive policies.
What is monetary policy?
Managed by the Federal Reserve; involves money supply and interest rates.
What is fiscal policy?
Government-driven; involves taxation and government spending.
List three tools the Fed uses to control the money supply.
- Open Market Operations
- Discount Rate Adjustments
- Reserve Requirements
What does the S&P 500 Index measure?
The performance of 500 large US companies.
What do stocks represent?
Ownership in a company.
