285 ch 11

money multiplier formula=

1/R

The Federal Reserve System consists of:

12 regional districts Board of Governors FOMC

money supply formula:

MS= Currency+Demand Deposits

Which of the following best illustrates the unit of account function of money? a. You list prices for candy sold on your Web site, www.sweettooth.com, in dollars. b. You pay for your WNBA tickets with dollars. c. You keep $10 in your backpack for emergencies. d. None of the above is correct.

a. You list prices for candy sold on your Web site, www.sweettooth.com, in dollars.

central bank

an institution that oversees the banking system and regulates the money supply

medium of exchange

an item buyers give to sellers when they want to purchase goods and services

store of value

an item people can use to transfer purchasing power from the present to the future

Current U.S. currency is a. fiat money with intrinsic value. b. fiat money with no intrinsic value. c. commodity money with intrinsic value. d. commodity money with no intrinsic value.

b. fiat money with no intrinsic value.

The 12 regional Federal Reserve Banks a. are not allowed to make loans to banks in their districts. b. regulate banks in their districts. c. have more voting members on the FOMC than does the Board of Governors. d. are each headed by a member of the Board of Governors.

b. regulate banks in their districts.

What part of the Fed meets to discuss changes in the economy and determine monetary policy? a. the Board of Governors b. the FOMC c. the regional Federal Reserve Bank presidents d. the Central Bank Policy Commission.

b. the FOMC

demand deposit definition:

balances in bank accounts that depositors can access on demand by writing a check

The existence of money leads to a. greater specialization in production, but not a higher standard of living. b. a higher standard of living, but not greater specialization. c. greater specialization and a higher standard of living. d. neither greater specialization or a higher standard of living.

c. greater specialization and a higher standard of living.

In a fractional reserve banking system, banks create money when they make loans. Bank reserves have a multiplier effect on the money supply.

chapter summary

Money includes currency and various types of bank deposits.

chapter summary

The Fed controls the money supply mainly through open-market operations. Purchasing govt bonds increases the money supply, selling govt bonds decreases it.

chapter summary

The Federal Reserve is the central bank of the U.S., is responsible for regulating the monetary system.

chapter summary

To decrease the money supply, the Fed could a. sell government bonds. b. increase the discount rate. c. increase the reserve requirement. d. All of the above are correct.

d. All of the above are correct.

Reserves are

deposits that banks have received but not loaned out

reserve ratio, R definition:

fraction of deposits that banks hold as reserves

reserve requirements definition:

minimum amount of reserves that banks must hold on against deposits, set by the Fed

how is money a store of value?

money holds its value over time, so you don't have to spend it immediately upon receiving it

money supply also known as:

money stock

fiat money

money without intrinsic value, used as money because government says so (U.S. Dollar) -worthless if not used as money

The Fed's 3 tools for monetary control:

open market operations discount rate reserve requirements

currency definition:

paper bills and coins in the hands of the public

reserve ratio, R formula:

reserves/deposits

commodity money

takes the form of a commodity with intrinsic value (gold) -still valuable if not used as money

money multiplier definition

the amount of money the banking system generates with each dollar of reserves.

barter

the exchange of one good or service for another

how is money a unit of account?

the price of virtually everything is measured in the same units-dollars

money supply:

the quantity of money available in the economy

money:

the set of assets that people regularly use to buy goods and services from other people.

unit of account

the yardstick people use to post prices and record debts

double coincidence of wants

two people each have a good the other wants

excess reserves definition:

when banks hold more reserves than the minimum requirement.

How is money a medium of exchange?

you use money to buy stuff