Module 3: The money supply

Question 1

what are monetary aggregates?

Answer 1

different measures of the money supply

Question 2

what is M1? or money base

Answer 2

checkings + cash

Question 3

what is M2?

Answer 3

M1 + saving deposits and liquid assets

Question 4

4 roles of money?

Answer 4

-medium of exchange
-unit of account
-store of value
-standard of deferred payment

Question 5

why is it called fractional reserve system?

Answer 5

money supply is a multiple of banks reserves

Question 6

how is money created?

Answer 6

by banks extending loans or by fed buying gov’t bonds

Question 7

central bank buys bonds from gov’t…

Answer 7

bonds stock go up, Money supply up, bank reserves down = + money to make loans

Question 8

money multiplier formula?

Answer 8

∆Money supply / ∆money base

Question 9

money multiplier is …

Answer 9

the ratio of change in Ms to a change in banks reserves or money base

Question 10

what are intermediaries?

Answer 10

institutions through which HouseHold savings are channeled to borrowers