Unit 5 Flashcards
What are bank reserves?
the currency that banks hold in their vaults PLUS their deposits at the fed. res.
What is the reserve ratio?
Where are they used?
reserves
————- -> they are used in banks
deposits
- ex. $100,000/$1,000,000 = 10%
What is a required reserve ratio?
the smallest fraction of deposits that the fed. res. allows banks to hold
What are reserve requirements?
rules set by the fed. res. that determine the required ratio for banks
- currently between 0-10% (depends on the amount deposited at bank)
What are excess reserves?
they’re a bank’s reserves that are over & above its required reserves (amount?)
What’s the money multiplier?
What does it show?
1/rr (reserve ratio)
- indicates the total number of $$ created in the banking system by each $1 addition to the monetary base
Define the monetary base
sum of currency in circulation & bank reserves
The medium-of-exchange function means that money is used:
to pay for goods and services.
What do financial markets provide?
liquidity
The federal government is said to be “dissaving” when
there is a budget deficit
Decreasing ___________ & ___________ is a task of the financial system
transaction costs & risk
What’s a budget surplus?
when income exceeds expenditures
What’s the store of value?
a means of holdings purchasing power over time
What’s the unit of account?
a measure used to set prices & make economic calculations
Define Commodity Money
a good used as a MEDIUM OF EXCHANGE that has intrinsic value in other issues
- gold, silver, etc.
