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28 Cards in this Set
- Front
- Back
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d: money
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asset that is widely used as a means of payment
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d: means of payment
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anything that can be used to buy something
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total money supply=
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cash in the hands of the public
checking account deposits traveler's checks |
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M1 is equal to
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cash, checkable deposits, traveler's checks
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types of checkable deposits
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demand deposits
automatic transfers |
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M2 is equal to
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M1 + all additional deposits
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traditionally, the money supply is
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M1
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economists look at M ? to determine trends
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M2
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what are the three functions of money
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1) unit of account
2) means of payment 3) store of value |
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d: unit of account
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money can be used to compare the prices
the way we think about money |
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d: store of value
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we can hold our wealth in money
the method we pay |
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d: commodity money
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items than have actual value that serve as a means of payment
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d: fiat money
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items issued by a government that have no actual value in itself, but have value because the government says so
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why are financial intermediaries beneficial
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combine loans from multiple households together
spread the risk associated with borrowing knows the market from experience |
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balance sheet
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ASSETS - LIABILITIES
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assets are
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the amount of cash on hand at the bank
what the bank owns |
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liabilities are
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the amount of cash the bank owes
the deposits in a bank are owed because they will have to be payed back |
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d: bonds
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promises by government or corporation to pay you back plus interest at a later date
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d: loans
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promises by a household/business to pay the bank back at a later date + interest in exchange for money now
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d: required reserve ratio
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the legally required amount of money that the bank has to hold required by the federal reserve
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why might banks want to hold excess reserves
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1) the interest rates might increase suddenly, so banks might want to loan out more money
2) in a recession more loans are defaulted so banks need to make up for this by having excess money |
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d: shareholder's equity
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total assets- total liabilities
used to balance the balance sheet |
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The Fed: Board of Governors
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7 members
14 year term members appoint by the pres, confirmed by congress 1 chairman, 4 year term appointed by president |
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The Fed: The Board of Directors for the Branches
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12 Branches
each has its own Board of Directors 3 members appointed by the Board of Governors 6 members appointed locally directors choose a president |
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The Fed: "member banks"
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part of the federal reserve system
nationally or state chartered |
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how does the fed increase the money supply
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open market purchase of bonds
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what are other ways the Fed can increase the money supply
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1) decrease the RRR, more money to loan
2) decrease the discount rate, more money to loan |
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what are other ways the Fed can decrease the money supply
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1) increase the RRR, less money to loan
2) increase the discount rate, banks must pay back loans |
