Term
| What are the four functions of money? |
|
Definition
| Medium fo exchange, unit of accuont, store of value, and a standard of deferred payment |
|
|
Term
| Define and explain the importance of bartering |
|
Definition
| Bartering is the direct exchange of goods for services. It was the baseline of transactions before the development of money. |
|
|
Term
| What gives money its' value? |
|
Definition
| To what degree it is exchangeable across the world over |
|
|
Term
|
Definition
| The degree to which an asset can be acquired or disposed of. Money is the most liquid, while antiques/furniture is the least liquid. |
|
|
Term
| In a transaction approach, how does money function? |
|
Definition
|
|
Term
| In a liquidity approach, how does money function? |
|
Definition
|
|
Term
| What forms of money are accepted as "M1"? What is characteristic of "M1" money? |
|
Definition
| Currency, checkable deposits, and traveler's checks; M1 money is money that is transactional and able to be used to exchange for goods or services |
|
|
Term
| Is a savings account/credit card or debit card considered money? Why? |
|
Definition
| YES; each allots a checkable deposit from one account to another |
|
|
Term
| In what three ways can the Fed change the money policy? |
|
Definition
| Required Reserve Ratio, Open Market Operation, Discount Rate. (Feds like Really Red Racecars, Overstuffed Marshmellow Oreos, and Diner Run) |
|
|
Term
| What happens to the money supply when the fed alters the reserve requirement? Explain |
|
Definition
When R.R. is raised, there is less $ in circulation.
When R.R. is lowered, more $ is in circulation.
This is due to more/less money being in reserve at banks, as a result helping/hurting the economy |
|
|
Term
| Is the money supply higher at 5% or 20%? |
|
Definition
|
|
Term
| What organization conducts open-market operations? |
|
Definition
|
|
Term
| What is the treasury's job? |
|
Definition
| To raise and manage money for the government |
|
|
Term
| How can the treasury borrow $ from the public? |
|
Definition
|
|
Term
| Why is a checking account sometimes called a demand deposit? |
|
Definition
| Because the funds can be converted to currency on demand; purchases are made instantly |
|
|
Term
| Why is a non-checking savings account considered "nera money" instead of money? |
|
Definition
| (M2) Because it is a temporary store of value; the money isn't accepted an direct exchange because money has to be withdrawn for full value |
|
|
Term
| What does it mean to say that the U.S. has a fractional reserve banking system? |
|
Definition
| Banks loan more than they have on hand; All deposits have small amount taken from it that is put into a banks' reserves |
|
|
Term
| What is the equation needed ni order to find the maximum change in money supply? |
|
Definition
| Change in $ supply = 1/reserve requirement X change in deposits |
|
|
Term
| What is the difference between an asset and a liability? |
|
Definition
| An asset is something from which banks can benefit from (short OR long-term). A liability is a situation in which money is owed without consequence. Meaning, checkable deposits and borrowings from the fed would be a liability for a bank, while giving out a loan would be an asset. |
|
|
Term
| What type of policy is the Fed responsible for implementing? |
|
Definition
|
|
Term
| What is the Fed's main goal? |
|
Definition
| To regualte, supply, and regulate money in the interest of banks |
|
|
Term
| What does the Fed do when it's determined there is too much money in circulation? |
|
Definition
| Raise interest rates & reserve rates |
|
|
Term
| What happens when the money supply increases faster than the deman for goods? |
|
Definition
|
|
Term
| How would the RRR or Open-Market operations respond to the threat of high inflation? |
|
Definition
| increase reserve ratio, raise interest rate, sell bonds |
|
|
Term
| Using monetary policy, how could one (in theory) solve a problem of unemployment? |
|
Definition
| lower interest rate, decrease reserve ratio, buy bonds |
|
|
Term
| Why does the government usually try to encourage growth of the economy during contraction phases? |
|
Definition
| because the economy will be able to rebound quicker and stronger with everyone on board |
|
|
Term
| In order to avoid _____, the government would attempt to decrease the amount of money in society by ________________. |
|
Definition
| inflation/the economy expanding too rapidly; lowering expenditures |
|
|
Term
| What effects would lowering taxes have on the economy? |
|
Definition
| people spend $, unemployment decreases, economic stimulation due to increase of money in circulation, less $ in gov. |
|
|
Term
| What are three effects of the gov. decreasing spending? |
|
Definition
| local economic activity, GDP, and Jobs plummet |
|
|
