M5 Economy
What are the three functions of money?
1. Medium of exchange 2. Unit of account 3. Store of Value
today, the RRR is
10%
the federal reserve system divides the country into
12 districts, each with its own federal reserve bank and board
the money multiplier in an economy where the RRR is 25% would equal
4
The development of money led to _______, as it reduced the opportunity costs of exchange.
Agriculture
How do banks create money?
Banks make money when they make loans and then get paid back.
Which of the following refers to a direct exchange of goods and services for other goods and services?
Barter
Monetary policy is used to promote reasonable economic growth, price stability, and full employment by changing the supply of money and credit in an economy.
False
The interest rate charged to banks to borrow from other banks is the _____.
Federal Funds
The interest rate charged to banks to borrow from the Federal Reserve is the _____.
Federal funds
_____ monetary policy seeks to make credit more accessible by lowering interest rates and increasing the amount of money created in the system.
Loose
the most narrow definition of money, which includes only currency and checkable deposits is referred to as
M1
the most frequently used tool to alter the supply of money and credit in the economy is
Open Market Operations [OMO]
the fed was created by the "federal reserve act of 1913" signed into law by
President Woodrow Wilson
When money can be saved and used later for purchases, it is functioning as a _____.
Store of account
How does The Fed influence the money supply?
The Fed influences the money supply by changing the reserve requirements which changes how much money banks can create with their loans.
How can monetary policy be used to promote economic growth, full employment, and price stability?
The monetary policy allows the banks to control the interest rates which in turn effects the economic growth and price stability. Then with price stability and economic growth it allows for a higher chance of full employment.
When money is used to measure the value of goods and services, it is functioning as a _____.
Unit of account
where does the fed's 7 member Board of Governors meet
Washington DC
an example of a "near money" would be
a $5000 certificate of deposit [CD]
Which of the following is NOT a desirable characteristic of money?
attractive
federal reserve notes are...
fiat money, meaning they have value due to government decree
if the supply of money increases, while the quantity of goods/services remains the same, then the price level in an economy would
increase
if the fed wants to fight high levels of inflation, it could
increase the discount rate and/or sell treasury securities
what is the relationship between price level and the value of a dollar
inverse
the Required Reserve Ration [RRR]. set by the Fed
is the amount of reserves banks must hold of each deposit
if the fed wants to increase the amount of money and credit available in the economy
it could lower the discount rate and/or buy treasury securities
during a recession, the fed might engage in
loose monetary policy
when money is used in exchange for goods/services, allowing a society to avoid the inefficiencies of a bartering system, money is functioning as a
medium of exchange
the federal open market committee [FOMC] is primarily responsible for
monetary policy
the process of successive loans and deposits is called
money creation
legal tender
must be accepted as payment for all debts, public or private
When there are signs of an economic slowdown, the FOMC would seek to increase the reserves held in banks by ____ treasury securities.
selling
when you put money aside for future spending, money is functioning as a
store of value
Fiscal policy
the use of government taxing and spending policies to achieve reasonable economic growth, full employment, and stable prices
Monetary policy
the use of tools the federal reserve has to alter the money supply to achieve the same goals as fiscal policy
_____ monetary policy seeks to make credit less available and reduces the amount of money created in the system.
tight
banks create money T/F
true
when price is used to judge the relative value of goods and services, money is functioning as a
unit of account
in the equation of exchange, MV=PQ, V represents the
velocity of money
