Macroeconomics ch 10 Flashcards
(24 cards)
What is Money?
Valuable because it can be used for making exchanges.
What is the direct exchange of goods?
Barter, requires a double coincidence of wants, and is harder than making a trade using money.
Compared to barter, money:
Increases specialization
The most important function of money is
Medium of exchange
When we hold onto money instead of spending it immediately
We are using money as a store of value, we can use our buying power when it is most valuable to us, and we may lose buying power if there is inflation.
Money has value because
it is generally accepted as a medium of exchange
M1 consists of
currency in circulation and liquid deposits
Which of the following is money?
NOT a check or credit card
In our fractional reserve banking system
Banks hold reserves equal to only a fraction of their deposits, the fraction of deposits that must be held is determined by the required-reserve ratio, and the required-reserve ratio is set by the Federal Reserve System.
If checkable deposits in 1st bank total $500 million and the required-reserve ratio is 10%, then required reserves for 1st Bank equal
$50 million
To meet its reserve requirement, a bank may count which asset?
Reserve balance accounts with the Fed
If the required-reserve ratio is 12%, and a bank receives a deposit of $1,000, how much may the bank loan out?
$880
Excess Reserves
Is the excess of reserves over required reserves and they may be loaned out
U.S. government securities
Are debt instruments issued by the federal government
U.S. government securities are an attractive investment for a bank because they
Pay interest, are highly liquid, and are low-risk.
If the required-reserve ratio is 10%, the potential deposit multiplier is
10
One-shot inflation can be caused by
An increase in Aggregate Demand
If the price level increases at a high rate year after year
This is continued inflation, it is caused by continued increases in aggregate demand, and the money supply must be increasing rapidly.
An increase in the rate of inflation
DOES NOT increase the buying power of people who hold money, increases the real interest earned on savings, and benefits lenders and hurts borrowers.
If Karen earns a 6% interest rate on her savings when the inflation rate is 4%, her real interest rate is
2%
A successful counterfeiter
Earns profit by seigniorage
When a government pays for government spending by issuing new currency
The increase in the money supply will cause inflation and this is an indirect tax on the holders of money
According to “The Economic Organization of a P.O.W Camp”, economic activity in the camp
Arose spontaneously as prisoners attempted to enhance their standard of living
In the P.O.W camp, cigarettes has the followings flaw when used as money
Their quantity fluctuated causing price level instability
