Term
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Definition
Money-Can be used to make purchases
Wealth-Something of value that cannot be spent |
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Term
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Definition
| The ability or ease with which assets can be converted into cash |
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Term
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Definition
1. Medium of exchange
2. Stores value
3. Unit of account
4. Standard of deferred payment |
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| Define medium of exchange |
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Definition
| Everyone wants money because everyone else wants money |
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Term
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Definition
| Money has purchasing power today AND tomorrow |
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Term
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Definition
| Value of items can be established through price |
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Term
| Commodity money vs. Fiat money |
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Definition
Commodity money-Money that has value as something besides money (livestock)
Fiat money-Money that has no other value (paper money) |
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Term
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Definition
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Term
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Definition
1. Currency/coins
2. Checking account balances
3. Travelers checks
4. M1 is worth $2.41 Trillion now |
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Term
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Definition
1. Everything in M1
2. Savings accounts
3. Money market accounts
4. Money market mutual funds
5. Small Cd's
6. Worth $10.14 Trillion now |
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Term
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Definition
| Amount of money bank is required to hold on to when loaning out money in percentage |
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Term
| If bank loans out more... |
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Definition
| Money supply increases by more |
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Term
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Definition
| Reserves a bank holds on to above and beyond required reserve ratio |
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Term
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Definition
Reserve requirement-5%
People keep out-10%
FINISH THIS |
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Term
| If people keep more money out of banks... |
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Definition
| The multiplier will be smaller |
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Term
| Constraints on money creation |
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Definition
1. Must have deposits
2. Must have willing borrowers
3. Must have willing lenders (generally banks) |
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Term
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Definition
1. Be governments bank
2. Regulate and oversee commercial banks
3. Control money supply
4. Keep prices controlled and economy strong |
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Term
| 3 parts of Federal Reserve |
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Definition
1. Board of governors
2. 12 Regional banks
3. |
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Term
| Who controls the Federal Reserve? |
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Definition
| Fed doesn't need anyone's authority to act but board is appointed by President and approved by senate |
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Term
| 3 ways fed controls money supply |
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Definition
1. Sets reserve requirements
2. Buys/sells bonds (open market operations)
3. Adjusts certain interest rates |
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Term
| Current reserve requirements |
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Definition
| 1. Bank<$11.5M must keep 0%
2. $11.5M$71M must keep 10% |
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Term
| What form must required reserves be held in? |
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Definition
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Term
| Financial services regulatory and relief act of 2006 |
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Definition
1. Bush signed
2. Allows Fed to lower required reserve to 0% IF THEY WANT
3. Took effect October 1, 2011
4. Fed has not lowered required reserve since |
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Term
| When Fed buys/sells bonds... |
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Definition
| It increases/decreases money supply |
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Term
| Who does Fed sell and buy bonds with? |
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Definition
Primary dealers (Big investment banks)
Ex: J.P. Morgan |
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Term
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Definition
| Interest rate charged by banks when other banks borrow money from them |
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Term
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Definition
| Interest rate charged by Federal reserve when banks borrow money from it |
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Term
| If fed fund rates are lower |
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Definition
| Banks will loan out more money to other entities |
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Term
| Lowering fed fund rates... |
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Definition
| Increses the money supply |
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| Raising fed fund rates... |
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Definition
| Decreases the money supply |
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Term
| What is the current Fed fund rate? |
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Definition
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