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exam 3 Flashcards

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1
Q

commodity money

A

currency that has value in and of itself ie gold coins

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2
Q

fiat money

A

currency with no inherent value, value is attributed ie debit card

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3
Q

medium of exchange

A

currency’s ability to be used to buy and sell goods and services

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4
Q

unit of account

A

money is a measurement of value

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5
Q

store of value

A

money can be saved and used in the future

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6
Q

nominal value

A

value printed on money

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7
Q

real value

A

what money can buy

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8
Q

real sector

A

produces goods and services

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9
Q

financial sector

A

creation, exchange, and valuation of financial assets such as money, stocks, bonds
- makes it possible to hold wealth in assets and obtain financing like loans

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10
Q

double conciousness of wants

A

for bartering to work, both parties must want what the other has at the same time

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11
Q

requirements of an effective currency

A

durable, portable, divisible, widely accepted, value is easily determined

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12
Q

liquidity

A

how fast, easily, and reliably can asset can be converted to cash

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13
Q

money 1 (M1)

A

(liquid) currency + demand deposits (checking accounts), other checkable deposits

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14
Q

money 2 (M2)

A

(less liquid) M1 + small value time deposits + savings deposits + money market deposits + money market mutual funds

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15
Q

financial intermediary

A

aquires funds from savers and lends to borrowers, reduces information costs, reduces transaction costs, banks can tolerate a small number of failed loans

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16
Q

bond

A

buyer promises to pay the bondholder interest payments + predetermined value of a bond at its maturity date

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17
Q

stocks

A

exchanges money for partial ownership of a company

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18
Q

liability

A

what banks owe to their customers

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19
Q

assets

A

deposits into a bank
- money is destroyed wen loans are paid
- its profitable to give out as many loans as possible, but it must be limited to customers who can actually pay them

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20
Q

The Federal Reserve

A

central bank of the US
- use money supply to influence interest rates

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21
Q

board of governors

A

Seven members appointed by the president and confirmed by the Senate
for a single 14-year term

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22
Q

Federal Open Market Committee

A

Composed of the Board of Governors and five of the 12 regional bank
presidents (with the New York Fed president as a permanent member)
Meets 8 times a year
decides on monetary policy

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23
Q

Functions of Regional Fed Banks

Study These Flashcards
A

Provide a nationwide payments
system including clearing checks and Fedwire and FedNow funds transfer system
Distribute coins and currency
Regulate and supervise member banks
Serve as the banker for the U.S.Treasury

24
Q

twin goals (dual mandate) of the Fed

Study These Flashcards
A

economic growth with low unemployment and stable prices with moderate long-term interest rates.

25
how the Fed influences interest rates
FOMC sets federal funds range -> policy implementation -> affects market interest rates and overall financial conditions influences consumer and producer spending -> progress toward dual mandate
26
reserve balance accounts
checking accounts banks hold within the Fed
27
federal funds transaction
transfer of funds from banks reserve account at the Fed to another
28
federal funds rate
interests on loans between banks in the Fed, Fed sets a range and can manipulate it, but cannot set it affects all other interest rates
29
interest on reserve balances (IORB)
interest accrued on banks reserve balance, set by the Fed "floor" of interest rates
30
discount rate
interest rate set by the fed to banks borrowing from the Fed "ceiling" of interest rates
31
how the fed influences AD-AS
Fed affects the interest rate, and thus investment
32
expansionary monetary policy
reduces interest rates, which leads to greater aggregate demand and investment, shifting the AD curve to the right
33
contractionary monetary policy
raises interest rates, which leads to lower aggregate demand and less investment, shifting the AD curve to the left
34
transparency and the Fed
In 1994, the Fed began releasing a statement whenever it changed interest rates policy is less effective when people are uncertain about what the Fed does
35
monetary policy lags
information, decision, recognition, and implementation like fiscal policy - Fed avoids legislative delays - monetary policy takes ~12-18 months to be effective
36
pro rules
discretion leads to arbitrary decisions and may cause instability with lags
37
pro discretion
economy is too complex for set rules, discretion is useful in extreme economic shocks
38
inflation rule
setting target inflation rate (2%)
39
monetary growth rule
increasing money supply by set percentage each year consistent with dual mandate
40
taylor rule
Federal funds target rate = 2 + current inflation rate + ½(inflation gap) + ½(output gap)
41
inflation
general increase in price level
42
deflation
general decrease in price level
43
consumer price index (CPI)
measures a weighted average of consumer prices CPI core excludes volatile prices of food and energy
44
Personal Consumption Expenditure Price Index (PCE)
The weights in the index can change when consumers substitute from some goods and services to other and it is more comprehensive, so it is used by the Fed. PCE core excludes volatile prices of food and energy
45
causes of inflation
demand factors: consumer confidence, income, and wealth supply shocks: price fluctuations on items monetization of debt: the central bank buying government debt to make it easier for the government to sell the debt
46
hyperinflation
inflation ~over 50% a month typically caused by excessive government spending over tax revenues and the printing of money to finance deficits
47
phillips curve
if policymakers use expansionary policy to reduce unemployment below the natural rate, they must be willing to accept higher inflation *not always the case
48
FDIC insurance
- Established by 1933 Banking Act - insures deposits in savings accounts up 250k
49
certificate of deposit
time deposit - penalty charge if funds are withdrawn before period, but interest rates are higher than savings
50
savings account
pro: highly liquid, low risk because funds are insured con: low or no interest rate
51
401k
retirement accounts available through large companies, allows you to save money pre-tax + additional funds from employer
52
pensions
employer continues to make paychecks after retirement
53
IRA (individual retirement account)
traditional (PRETAX (TAX- DEFERRED) CONTRIBUTIONS THAT CAN BE INVESTED. TAXES PAID UPON WITHDRAWAL) or Roth (AFTER-TAX CONTRIBUTIONS. NO PENALTY FOR EARLY WITHDRAWAL. NO TAXES ON EARNINGS. long term, tax advantaged savings account
54
social security
funded by payroll tax - minimum age to collect is 62, but payments increase if one waits until 67 - benefits are calculated by one's lifetime contributions
55

macro (4 decks)

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