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Cuba #3
Lattimore
29
Economics
12th Grade
03/19/2014

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Cards

Term
What are the four functions of money?
Definition
Medium fo exchange, unit of accuont, store of value, and a standard of deferred payment
Term
Define and explain the importance of bartering
Definition
Bartering is the direct exchange of goods for services. It was the baseline of transactions before the development of money.
Term
What gives money its' value?
Definition
To what degree it is exchangeable across the world over
Term
What is liquidity?
Definition
The degree to which an asset can be acquired or disposed of. Money is the most liquid, while antiques/furniture is the least liquid.
Term
In a transaction approach, how does money function?
Definition
as a means of exchange
Term
In a liquidity approach, how does money function?
Definition
as a store of value
Term
What forms of money are accepted as "M1"? What is characteristic of "M1" money?
Definition
Currency, checkable deposits, and traveler's checks; M1 money is money that is transactional and able to be used to exchange for goods or services
Term
Is a savings account/credit card or debit card considered money? Why?
Definition
YES; each allots a checkable deposit from one account to another
Term
In what three ways can the Fed change the money policy?
Definition
Required Reserve Ratio, Open Market Operation, Discount Rate. (Feds like Really Red Racecars, Overstuffed Marshmellow Oreos, and Diner Run)
Term
What happens to the money supply when the fed alters the reserve requirement? Explain
Definition
When R.R. is raised, there is less $ in circulation.
When R.R. is lowered, more $ is in circulation.
This is due to more/less money being in reserve at banks, as a result helping/hurting the economy
Term
Is the money supply higher at 5% or 20%?
Definition
5%
Term
What organization conducts open-market operations?
Definition
the FOMC
Term
What is the treasury's job?
Definition
To raise and manage money for the government
Term
How can the treasury borrow $ from the public?
Definition
through bonds
Term
Why is a checking account sometimes called a demand deposit?
Definition
Because the funds can be converted to currency on demand; purchases are made instantly
Term
Why is a non-checking savings account considered "nera money" instead of money?
Definition
(M2) Because it is a temporary store of value; the money isn't accepted an direct exchange because money has to be withdrawn for full value
Term
What does it mean to say that the U.S. has a fractional reserve banking system?
Definition
Banks loan more than they have on hand; All deposits have small amount taken from it that is put into a banks' reserves
Term
What is the equation needed ni order to find the maximum change in money supply?
Definition
Change in $ supply = 1/reserve requirement X change in deposits
Term
What is the difference between an asset and a liability?
Definition
An asset is something from which banks can benefit from (short OR long-term). A liability is a situation in which money is owed without consequence. Meaning, checkable deposits and borrowings from the fed would be a liability for a bank, while giving out a loan would be an asset.
Term
What type of policy is the Fed responsible for implementing?
Definition
monetary policy
Term
What is the Fed's main goal?
Definition
To regualte, supply, and regulate money in the interest of banks
Term
What does the Fed do when it's determined there is too much money in circulation?
Definition
Raise interest rates & reserve rates
Term
What happens when the money supply increases faster than the deman for goods?
Definition
inflation
Term
How would the RRR or Open-Market operations respond to the threat of high inflation?
Definition
increase reserve ratio, raise interest rate, sell bonds
Term
Using monetary policy, how could one (in theory) solve a problem of unemployment?
Definition
lower interest rate, decrease reserve ratio, buy bonds
Term
Why does the government usually try to encourage growth of the economy during contraction phases?
Definition
because the economy will be able to rebound quicker and stronger with everyone on board
Term
In order to avoid _____, the government would attempt to decrease the amount of money in society by ________________.
Definition
inflation/the economy expanding too rapidly; lowering expenditures
Term
What effects would lowering taxes have on the economy?
Definition
people spend $, unemployment decreases, economic stimulation due to increase of money in circulation, less $ in gov.
Term
What are three effects of the gov. decreasing spending?
Definition
local economic activity, GDP, and Jobs plummet
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