Money, Banking And The FED part 1

Question 0

The function of money that allows you to save value of labor to be used at a later date

Answer 0

Store of value

Question 1

What are the three functions of money

Answer 1

Act as a medium of exchange, a unit of measure other known as a unit of account, and a store of value

Question 2

Function of money that allows you to trade for goods and services more easily than bartering

Answer 2

Medium of exchange

Question 3

Function of money that allows you to precisely calculate the value of a good or service in the utility provided

Answer 3

Unit of measure or unit of account

Question 4

What are the two types of money

Answer 4

Commodity money and Fiat money

Question 5

Type of money that has value outside of being money

For example coins made from gold or another precious metal

Answer 5

Commodity money

Question 6

Type of money that has no value outside of being money

Example is paper currency

Answer 6

Fiat money

Question 7

This is the representation of some value

Answer 7

Money

Question 8

What are the characteristics of modern money that makes it a good medium of exchange

Answer 8

Easily divisible
Easily transportable
Durable
Universal acceptance
Difficult to reproduce

Question 9

The ability of an asset to be used to make purchases in simple terms easy to convert an asset into cash

Answer 9

Liquidity

Question 10

What are highly liquid forms of money

Answer 10

Cash checks savings accounts

Question 11

What are less liquid forms of money

Answer 11

Bonds collectibles Stocks jewelry

Question 12

What does liquidity determine

Answer 12

What counts as actual money in the economy

Question 13

What is liquidity closely connected to

Answer 13

Interest rates

Question 14

Measure that is 100% liquid

Answer 14

M1

Question 15

What all is included in M1

Answer 15

Cash, coin, checking accounts, travelers checks

2.8 trillion

Question 16

Slightly less liquid than M1, earns interest, usually sits for a a while

Answer 16

M2

Question 17

What does M2 include

Answer 17

M1, savings accounts, money market accounts, time deposits, money market mutual funds

the above accounts must be less than $100,000
11 trillion

Question 18

Broadest measure of money

Answer 18

M3

Question 19

What does M3 include

Answer 19

M2 plus time deposits over $100,000 and large money market mutual funds

Question 20

What type is used to buy things and what type is short-term savings

Answer 20

M1 to buy, and M2 for short-term savings

Question 21

What is a pure money what is a near money

Answer 21

Pure money is the liquid M1

Near money is an asset that does not function directly as a medium of exchange but can readily be converted into M1
It is M2

Question 22

How many times is each dollar used

Answer 22

Multiple times this should not be confused with GDP

Question 23

What is money in relation to economic activity

Answer 23

Money influences economic activity it is not equal to it

Question 24

What is fractional reserve banking

Answer 24

Keeping a fraction of deposits in reserve to pay back customers based on old-fashioned gold banking

Question 25

What are the risks in fractional reserve banking

Answer 25

Runs on the bank Make too many loans in search of a irrational profits Inflation may result from rapid creation of money

Question 26

Things of value that the bank owns Examples cash, deposits, loans, real estate, reserves

Answer 26

Assets

Question 27

Things of value the bank owes Examples deposits, loans

Answer 27

Liabilities

Question 28

Percent of deposits set-aside by law to repay customers

Answer 28

Reserves

Question 29

What is the relation between assets and liabilities

Answer 29

Assets must exceed liabilities or the bank is in trouble

Question 30

Amount left over after the required reserves this amount can then be loaned out

Answer 30

Excess reserves

Question 31

Legal minimum the bank must set aside

Answer 31

Required reserves

Question 32

What is this formula for the simple deposit multiplier

Answer 32

One over required reserves

Question 33

What are the two critical assumptions that must be made in order for the multiplier to work

Answer 33

All money must be redeposited | All excess reserves must be reloaned

Question 34

When determining the new money put into the economy what must be taken into account

Answer 34

Subtracting by the initial amount

Question 35

What is the jobs of the Federal Reserve

Answer 35

Regulate the financial system Act as the governments bank Act as a lender of last resort during a liquidity crisis Conduct monetary policy by controlling the money supply

Question 36

What does the federal reserve do even though it sits outside of the circular flow

Answer 36

Heavily influences the financial/banking sector Conduct monetary policy Connects the government to the financial market

Question 37

What is the organization of the Federal Reserve

Answer 37

Board of governors 12 district banks FOMC ( Federal open market committee)

Question 38

Seven members on a 14 year term Make big picture financial decisions Yellen is the first woman chair person

Answer 38

Board of governors

Question 39

Chosen by member banks | Carry out federal goals/jobs at the regional level

Answer 39

12 district banks

Question 40

Most important Seven governors in five regional presidents one president is always from New York Make monetary policy decisions control money supply

Answer 40

Federal open market committee

Question 41

Altering the money supply to steer economic activity

Answer 41

Monetary policy

Question 42

Increase money supply increase GDP decrease unemployment

Answer 42

Expansionary monetary policy

Question 43

Decrease money supply decreased GDP decreased inflation

Answer 43

Contractionary monetary policy

Question 44

Meet eight times per year to decide what the economy needs moneywise to meet goals maximum output stable prices low unemployment

Answer 44

Federal open market committee

Question 45

When it comes to monetary policy what are the tools of the Federal Reserve

Answer 45

Reserve requirements Discount rates Open market operations

Question 46

This changes the banks reserves and the multiplier

Answer 46

Reserve requirement

Question 47

This changes the interest-rate that the federal reserve charges member banks to borrow

Answer 47

Discount rate

Question 48

Buying or selling bonds to change the federal funds rate

Answer 48

Open market operations

Question 49

What is the most effective tool when it comes to monetary policy

Answer 49

Open-market operations

Question 50

What is often used as a signal indicating where the Federal Reserve wants to go in monetary policy

Answer 50

Discount rate change

Question 51

Why is the reserve requirement change rarely used except during a huge crisis

Answer 51

Yes it is too strong it has a double effect on the monetary base either adds or subtracts reserves that the banks can use to lend to customers and changes the simple deposit multiplier affecting the amount of money that banks can create

Question 52

What is the federal funds rate

Answer 52

The rate the banks charge each other to borrow money