exam 3

Question 1

3 functions of money
`

Answer 1

1- medium for exchange
2- store value
3- gauge of relative price

Question 2

commodity money

Answer 2

based on intrinsic value
ex gold or silver

Question 3

fiat money

Answer 3

something that has no value expect to be used as money

Question 4

whats M1

Answer 4

transaction monye or the most liquid form of money

Question 5

whats M2

Answer 5

broad money M1 and everything not defined in M1

Question 6

required reserve ratio

Answer 6

the amount of money banks must keep on hand

Question 7

how to calculate required reserve ratio

Answer 7

take percent of total deposits

Question 8

money multiplier

Answer 8

how much money supply will increase as a result of the inital deposit

Question 9

money multiplier formula

Answer 9

1/RRR

Question 10

discount rate

Answer 10

the intrest rate charged by the fed to banks

Question 11

increased discount rate
leads to

Answer 11

decrease money supply

Question 12

decreased discount rate
leads to

Answer 12

increase money supply

Question 13

what does expansionary monetary policy effect

Answer 13

money supply/\
Interest rate\/
Output /\

Question 14

contractionary monetary policy effect

Answer 14

money supply\/
Interest rate\/
Price level \/

Question 15

relationship betwen money demand and intrest rate

Answer 15

as money demand declines interest rates rise

Question 16

what shifts the money demand curve

Answer 16

output (gdp), price level (inflation)

Question 18

what is intrest rate

Answer 18

price of money
cost of investment
return on savings