Ch. 15

What did James O'Tools Say?

"In far too many instances, the USA is attempting to implement tomorrow's competitive strategies with yesterday's managerial ideas"

Reserve Requirement

% of deposits that the bank must hold in reserve

Money

(currency) anything generally accepted in exchange for goods and services

Functions of Money

1) Medium of Exchange-single item that can be freely converted to any good or service 2) Measure of Value-common standard of the value of goods/services 3)Store of Value-serves as a way to accumulate wealth (buying power) until it is needed

What are the 3 reasons why Debt/National Debt Matter?

1. Debt leads to spending more on interest 2. Puts a country at mercy 3. Means that you are not coming to grips with spending on things you cannot afford

What are the 6 Characteristics of Money?

Acceptability, Divisibility, Portability, Stability, Durability, Difficult to Counterfeit

National Debt

Accumulation of annual deficit

Surplus

Annual Revenue Exceeds Spending

Deficit

Annual Spending Exceeds Revenue

What is the system needed to facilitate an exchange called?

Banking system

What happens when the Fed increases reserve requirements?

Banks make fewer loans, money supply decreases, economic activity decreases

What happens when the Fed decreases reserve requirements?

Banks make more loans, money supply increases, economic activity increases

Characteristic of Money: Portability

Easy to carry from one place to another

Monetary Policy

Federal government's regulation of money

What happens when the Fed decreases interest rates?

Interest rates decrease, money supply increase, economic activity increases

What happens when the Fed increases interest rates?

Interest rates increase, money supply decreases, economic activity slows down

Who is the current chairman of the Federal Reserve?

Janet Yellens

What are the 3 Functions of Money

Medium of Exchange, Measure of Value, Store of Value

In most economies in the word today--what is the formal medium of exchange?

Money/Currency

What happens when the Fed relaxes credit controls ?

More people are encouraged to make major purchases, increasing economic activity

Characteristic of Money: Durability

Must be durable, withstand for many years in terms of paper condition

Characteristic of Money: Stability

Must be stable and maintain its declared face value

Are credit cards and debit cards money?

No. They are means of accessing money

What happens when the Fed restricts credit control?

People are discouraged to make major purchases, decreasing economic activity

What is the best single indicator of economic health?

Productivity Growth

What are three ways that banks make money?

Services, Fees, borrow at a discount rate

What are the two keys to Enduring Economic Strength?

Strong Profits and Wage Growth

Why has the U.S fallen from 1st in productivity to 11th?

The U.S is trying to implement tomorrow's competitive strategies with yesterdays managerial ideas, not changing=no better results

What currency is the global standard?

US Dollar

What does international business do?

add complexity

Characteristic of Money: Divisibility

all items must be valued in terms of comparable units

Credit Controls

authority of the Fed to establish and enforce credit rules for financial institutions and private sectors

Spread

bank borrows money from the Federal Reserve at a discount rate and lends it the customers at a higher rate

Why is a shift from a service/technology economy to a knowledge/innovation/technology economy so important to the U.S middle class?

because workers in a knowledge/innovation/technology economy come with more skills, they get higher pay (high labor rates), which would overall help the middle class

Finance Companies

businesses that offer short-term loans at higher rates of interest rates than banks

Brokerage Firms

buy and sell bonds, stocks and other securities for the customer, provide financial serivices

Services

checking, credit cards, lock boxes

What are the 4 major responsibilities of the Federal Reserve?

control the supply of money(monetary policy), regulate banks, manage regional/national account procedures, supervise federal deposit insurance programs of banks within the federal reserve.

Open Market Policy

decision to buy or sell treasury bills and other investments in the open market

How do banks stimulate an economy?

facilitate the exchange of goods/services, and credit (borrow money)

Fees

fee of exchange rate, overdrafts

Federal Reserve Board

independent agency of the federal government that regulates

What are 4 factors that influence exchange rate?

interest rate, inflation, country's balance of trade/payments, speculation

Why is a shift from a service/technology economy to a knowledge/innovation/technology economy so important to the U.S?

labor rates are less of an issue in a knowledge/innovation/technology economy as compared to a service/technology economy

Characteristic of Money: Difficult to Counterfeit

money must be made in a way that makes it harder to duplicate

Characteristic of Money: Acceptability

money must be readily acceptable for the purchase of goods, settlement of debt

What happens when the Fed sells government securities?

money supply decreases, economic activity slows down

What happens when the Fed buys government securities?

money supply increases, economic activity increases

Mutual Funds

pools individual investor dollars and invests them in large number of well-diversified securities

Is the banking system in the U.S privately owned or government owned

private ownership

Discount Rate

rate of interest the Fed charges to loan money to any banking institution, in order to meet the reserve requirement

Finance

study of money, how it's made, how its lost, and how its managed

Investment Banker

underwrites new issues of securities for corporations, state, needed to raise money in the capital markets