[MACRO] 06 - Money Supply and the Federal Reserve System

Question 1

Hierarchies of Banks (3)

Answer 1

1) Central Bank (independent of gov.)
2) Commercial Banks
3) Households/Firms

Question 2

Role of the Central Bank

Answer 2

The central bank regulates all financial intermediaries. It can also set controlled floating exchange rates, by setting upper and lower levels for an exchange rate, in order to control it.

Question 3

3 Different Types of Money

Answer 3

1) M1 - Cash in Circulation
2) M2 - Bank (Deposit Accounts)
3) M3 - Bank Reserves (Stock)

As the M’s increase, the liquidity decreases.

Question 4

Definition: Money

Answer 4

Anything generally accepted as a medium of exchange.

Question 5

Types of Money (2)

Answer 5

1) Fiat money - only has value in exchange

2) Commodity Money - has value in exchange and can be used for something else too

Question 6

Properties of Money

Answer 6

1) Durable
2) Portable
3) Should have purchasing power
4) Divisibility - should be able to pay with any amount

Question 7

Definition: Barter

Answer 7

The direct exchange of goods and services for other goods and services