Unit 3 Flashcards by Marcela Uvario

Currency + Checking Accounts + Savings Accounts

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M1 + Time Deposits(like CD) + Money Markey Mutual Funds

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Bank

Any institution that takes in deposits and makes loans

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Run on a Bank

When most people TRY to take out all their money at the same time

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In which history phase of money is money exchangeable for gold?

Gold-Backed Money (Gold Standard)

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In which history phase was money valuable as a product and money?

Commodity Money (like gold coins)

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In which history phase was money a “paper” currency that stands on the strength of the economy?

Free Standing Money (like US dollars)

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What type of money is used most commonly now-a-days which has little to no physical form?

Electronic Money

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Credit Cards are not money- Why?

it is a short term loan

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Which of the following are examples of the “medium of exchange” function of money?
I. Putting money in the bank
II. A shirt costing $40
III. Paying for a purchase with a check
IV. A loan
V. Purchasing a car in full
VI. A paycheck

III. & V.

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Which of the following are examples of the “Store of Value” function of money?
I. Putting money in the bank
II. A shirt costing $40
III. Paying for a purchase with a check
IV. A loan
V. Purchasing a car in full
VI. A paycheck

I. & VI.

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Which of the following are examples of the “Standard of Measurement” function of money?
I. Putting money in the bank
II. A shirt costing $40
III. Paying for a purchase with a check
IV. A loan
V. Purchasing a car in full
VI. A paycheck

II.

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Which of the following are examples of the “Standard of Deferred Payment” function of money?
I. Putting money in the bank
II. A shirt costing $40
III. Paying for a purchase with a check
IV. A loan
V. Purchasing a car in full
VI. A Paycheck

IV.

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What are the functions of the Chair of the Board of Governors? (E.C.)

Goes before Congress twice a year
Is the public face for the federal reserve

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What are the functions of the Board of Governors?

Appointed by the president and confirmed by the Senate

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What are the functions of the Federal Reserve Banks

Clears checks
Replaces old money
Inspects banks in the district
Reports on the economic well being of the district
Holds the reserves for each member bank

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What are the Roles of the Member Banks?

Monetary Policy changes

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What are the functions of the Federal Open Market?

19 total members 12 of which are voting members
7 Board of Governor’s plus 5 Reserve Bank Presidents (New York President and 4 other rotate)

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What is the monetary policy role of the Federal reserve?

Carries our Federal Reserve Policies

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What is the policy role of the Federal Open Market Committee?

Sets policy on open markey operations

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What is the policy roles of Board of Governors?

Able to set most policiy for the Federal Reserve

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What is the policy roles of the Chair of the Board of Governors?

They Set the agenda and range for Federal Reserve Policy

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What is the function that the Federal Reserve Bank perform for their members?
I. Inspect banks
II. Carry out monetary policy changes
III. Replace old money

I and III

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What is the Classical View of the economy in general?

The economy is stable and moves to full production in the long run

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Which statement(s) about the make-up of the Open Market Committee is (are) correct? I. There are 9 Board of Governors II. The New York Federal Bank President always vote III. There are 12 voting members

II and III

If the Federal Reserve wants to change the Reserve Requirement, what role does each of the following play in the process? The Board of Governors

Is able to set the policy

If the Federal Reserve wants to change the Reserve Requirement, what role does each of the following play in the process? The Member Bank

Have their activities changes

If the Federal Reserve wants to change the Reserve Requirement, what role does each of the following play in the process? The Federal Reserve Banks

Carries out the policy

How does the economy grow according to a Classical view point?

Saving to Investment to LRAS grows

What are the two assumptions about the Equation of Exchange?

"Q" had to constant since the economy was always at full production "V" was constant due to technology changing slowly during this time period

What are the 3 outcomes?

1. In the long run, full employment 2. in the long run, full profuction 3. LRAS is vertical

by wages & prices flexing [blank] it removes a [surplus]

downward

by wages & prices flexing [blank] it removes a [shortage]

upward

Why is the Federal Reserve semi-public and semi-private

the Board of Governors is public all other employees are private

Central bank functions are split into two what is the U.S. Treasury

handles all financial transactions for the U.S. government

Central bank functions are split into two what is the Federal Reserve

handles all the money supply and any economic policies that relate to the money supply

Why should the Federal Reserve be Independent or not ? pick a side

Pro- Independence 1. The Federal Reserve should remain free from any political pressure. Their decisions should be based purly on economic needs. The current system isolates the FED from pressure by either the President or Congress 2. The Federal Reserve should be run by people who are qualified to do the job. They must have the abilities to understand economic conditions and the policies needed to address those conditions

What are the tools of the Fed (Sh.A)

1. Reserve requirment 2.pen market operations 3. Discount rate 4. Federal funds rate

current discount rate vs recession

5.5-5.75% 0%- 5%

reserve requirment

RR goes up→ LF goes down→ #of loans goes down→ MS goes down→ i rates goes up (vice-versa) RR: Reserve requirement LF: Loan funds MS: money supply

Open Market Operations

(fed view) buy bonds→ deposits go up→LF goes up → # of loans go up→ MS goes up→ i rates go down

Discount rate

DR goes up→ borrow less reserves → LF goes down→ # loans goes down→ ms goes down→ i rates go up

Federal funds rate(FFR)

FED comes in on the buying side→ demand and supply for fed funds → FFR goes up if FFR goes up → other i rates go up

How does the classical model view the government?

Negative view of govt' intervention in the economy

What does the classical model say the 3 roles of government are

1. Legal system 2. National Defense 3. Promoting competition

Say's Law

Supply creates its own demand

What does say's law imply?

1. Supply will create an equal demand 2. The economy will have stable long run growth

How does the economy grow? according to classical model?

saving→ investment → LRAS grows S increases → LRAS would grow fast

Assumption of flexible interest rates

No matter how the saving curve or investment curve shift, i rates will flex to keep S=I of full production

Velocity

of transactions $ makes in a year

Transaction

demand for money

What happens if M goes up

M increases= inflation

What happens if M goes down

Deflation

What happens if M changes?

P will change in the same direction

Keynesian Criticism? E.C.

1. Attack flexible wages and prices. W&P will flex upward but resist flexing down. Society has become more urban and interdependent, so people/businesses depends more on wages/ prices 2. S=I may not be at full production S =savings I

Efficient wage theory. Why W? (E.C.)ƒstr

1. Firm gets more motivated and productive workers 2. Ready replacement pool of workers

Autonomous consumption

Spending independent of income

Consumption function what does the 45* show?

Shows all possible equilibrium points

Factors that can shift Autonomous consumption

1. Wealth goes up → auto c goes up 2. Debt - short term → auto c goes up - long-term→ auto c goes down 3. Household age and size age up → auto c down size down → auto c down 4. expectations good exp → auto c goes up bad exp future → auto c goes down

Pro Fed Argument

1. the federal reserve should remain free from any political pressure. Their decisions should be based purely on economic needs. The current system isolates the FEED from pressure from the legislative or executive branch. 2. The federal reserve should be run by people who are qualified to do the job. They must have the abilities to understand economic conditions and the policies needed to address those conditions.