Econ- Money

suppose the reserve requirement is 15%, for every $100 on deposit, the banks needs to hold $______ on reserves

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Monetary Policy

The actions taken by a country central bank to influence the supply of money and credit in the economy.

The central bank

The entity responsible for overseeing the monetary system for a nation

money marker mutual funds

a deposit account that accepts deposits and purchases bonds and commercial debt that pay interest

the federal deposit insurance corporation is

a government corporation that operates as an independent agency not part of the federal reserve system

bond cost and bond yield

always move in opposite direction

check

an instruction to transfer funds from your account to another persons account

Time deposit

an interest bearing deposit held by a bank or financial institution for a fixed term whereby the depositor can only withdraw the funds after giving notice

money

any item that both buyers and sellers will generally accept in exchange for goods and services

loans are an _______ to a bank and a ___________ to the person who borrowed the money

asset liability

the fed

can change the money supply by increasing or decreasing the amount of reserves in the banking system

a change in interest rate will

cause a movement along the money demand curve

Examples of M2 assets

certificates of deposit, a savings account, time deposits

total money demand is

down sloping as a result of asset demand

the total demand for money is

down-slopping as a result of asset demand

excess

equal to total reserves minus required reserves

when banks need additional currency from customers, they get it from the

fed

banks can create money by making use of

fractional reserve banking

required reserves

held as currency earn no interest

transaction demand depends on

how expensive output it and how much output people buy

Travelers checks are

immediately convertible, they are highly liquid and go into M1

currency

in active circulation included money in everyone pockets and is part of M1 !!!

when an individual deposits a check at the local bank, the banks reserves _____________. The bank can use most of those reserves to make_______________, ________________, the supply of money in the economy.

increase loans increasing

the money supply is a vertical line because it is

independent of the interest rate

the fed operates

independently within the government, but not Independence of it .

excess reserves very little

interest

the yield of a bond is

interest rate/ bond cost

knowing how much money an economy has matters because it helps determine

interest rates and prices

Monetary Policy affects

interest rates charged on loans, interest rates charged paid on savings, the price of good, services, and resources.

the federal reserve board of governors

investigates the effect of banking laws, investigates the health of the economy, oversees research into domestic and international financial conditions

the money market

is a market in which the demand for and supply of money determine an interest rate, or opportunity cost of holding money balances

M1

is the measure of money supply that contains currency or assets that can almost immediate be transferred into currency without penalty.

interest rate

is the price of money

when you pay with a debit card

it allows you to access your checking account balance so it is considered money it's a high tech form of a check

usury

lending that unfairly enriches the lender, like charging an excessive rate of interest

central banks dont

make loans to you, other households, or to businesses other than banks

payday loans

modern day application of usury laws, which limit the interest rate that can be charged on a loan

the yield is

net profit earned/ amount invested

the majority of the money in the U.S. economy is

nothing tangible you can hold, but is instead merely a computer entry

interest rate is the

price of money

the federal open market committee

promotes stable prices determines and implements the nations monetary policy promotes economic growth in the U.S. economy controls the money supply

the fed provides banks with financial services by

receiving and delivering the currency transferring funds clearing checks

transaction money demand is

related to the level of nominal GDP and independent of the interest rate

If the bank keeps all of its deposits as ___________, the bank wont make any money

reserves

a change in the demand for money will

shift the money demand curve

the fed serves as

the bank for the federal government

the reserve requirement facing brians bank is 20% (1,500)

the bank must keep $300 on reserve This creates 1,200 in excess reserves the bank can lend $1,200

the members of the federal open market include

the board of governors the president of the New York fed four presidents from district banks other than NY

reserve requirement (rr)

the fraction of checkable deposits that banks must keep on hand as reserves, either as currency or on deposit with the Federal Reserve

Discount rate

the interest rate at which banks can borrow money directly from the federal reserve

examples of M2

the money you have in your savings, time deposits, money market mutual funds

the fed operates independently within the government, but not independent of it because new members are appointed by

the president and confirmed by the senate

Open market operations

the purchase or sale of government securities by a central bank; a key tool of monetary policy used to influence the money supply and interest rates

when people specialize and produce the goods for which they have a comparative advantage

total output in an economy can increase

the federal reserve, commonly called the fed

tracks the money supply

the determinants of money demand

uncertainty about the future, changes in real GDP, changes in the price level

An store of value

used to transfer wealth from the present into the future, money is....

open market operations

when the fed buys or sells government securities in the open market to change the money supply

inelastic supply

when the quantity of product supplied does not change when the products price goes up and down

when you pay with a credit card

you pay for the item when you pay your credit card bill with funds from your checking account. the bank that issued the credit card pays the merchant for the goods you bought