Term
| What is fiat money? give an example. |
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Definition
| money by government decree; metallic coins/gold |
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Term
| What is commodity money? give an example |
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Definition
| money that has an alternative use as an economic good, or commodity; tea leaves |
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Term
| What is a specie? give an example |
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Definition
| money in the form of silver or gold coins; English shillings |
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Term
| What is the gold standard? |
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Definition
| uner a gold standard, the countries receving the currency had the right to demand that it be converted into gold |
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Term
| What is a transactions motive? |
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Definition
| demand for "predictable" money--everyday financial obligations such as rent, car payment, food, monthly bills, etc. |
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Term
| What is a speculative motive? |
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Definition
| the demand for money necessary to satisfy investor needs in money investments....folks who wish to hold cash rather than some other kind of investment like stocks, bonds, or real estate |
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Term
| What is a precautionary motive? |
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Definition
| demand for money to handle future needs that are unpredictable but common too...these include: medical bills, accidents, car repairs, etc |
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Term
| What is M1? What does it include? |
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Definition
| money that matches the money's role as a medium of exchange such as US treasury currency and coin, checking accounts |
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Term
| What is quantitative easing? |
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Definition
| the introduction of new money into the money supply by a central bank |
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Term
| What is the tight money policy? |
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Definition
| If the fed sells securities, the money supply will decrease, and interest rates will rise, causing spending to decrease because money is "tight" |
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Term
| What is the easy money policy? |
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Definition
| the fed will buy securities, which expands the money supply, causing interest rates to fall, which increases spending which means money is "easy" |
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Term
| What is the reserve requirement? |
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Definition
| the required reserve that banks must maintain in their vaults or at the Fed and NOT lend out to to borrowers or invest in treasury securities. The money comes from the deposits. The current reserve requirement is 3.5% of deposits |
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Term
| What is the discount rate? |
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Definition
| the rate at which the fed will lend out money to their member banks, not for retail; if the discount rate is raised...the tight money policy falls into place; if the discount rate is lowered....the easy money policy falls into place |
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Term
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Definition
| the lowest possible rate commercial banks extend to lenders...about 3.27%; known as the Wall street journal prime rate |
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Term
| What is open market operations? |
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Definition
| the buying and selling of US government debt; this is method is the fed's most popular tool in conducting monetary policy and allows the fed to influence short-term interest rates |
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Term
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Definition
| federal open market committee--the part of the fed that conducts open market operations which is the buying and selling of US government debt; the FOMC decides whether interest rates are too high or too low or just right |
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Term
| What is the fractional reserve banking system? |
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Definition
| If the reserve requirment is 10% and farmer puts $10 in the bank; the banks is then required to leave $1 in the bank and they can lend out $9. The person they lend the $9 to someone who will use it for some purpose and they $9 will eventually end up back in the bank in the form of deposits, the bank then has to keep $1 in the bank and can lend out $8 and so forth... |
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Term
| Explain the velocity of money. |
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Definition
| the rate at which money changes hands. This value changes frequently. If the velocity is high, money is chaning hands quickly and a relatively small money supply can fund a large amount of purchases. for the US, our velocity of money is 10 and there is about $1.5 trillion dollars in our economy. In order for our country to reach the GDP of $15 trillion, that $1.5 trillion dollars must trade hands 10 times (the velocity of money |
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Term
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Definition
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Term
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Definition
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Term
| If the reserve requirement is 20 %, what is the maximum possible growth in the money supply if $500 is deposited in the bank? |
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Definition
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Term
| Expression of worth and function of money: _____. |
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Definition
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Term
| money in the form of coins:_____. |
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Definition
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Term
| Any substance that functions as a medium of exchange, a measure of value, and a store of value:_____. |
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Definition
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Term
| Ingots or bars of precious metals:____. |
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Definition
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Term
| money by government decree: |
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Definition
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Term
| If the federal reserve lowers the reserve requirement, what happens to the interst rates and gross national product? |
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Definition
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Term
| The purchase of securities on the open market by the federal reserve will _____. |
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Definition
| increase the supply of money |
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Term
| How do commercial banks make their profits? |
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Definition
| the spread between interest paid on deposits and charged on loans |
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Term
| If the fed lowers the reserve requirement, what will happen to the money supply and interst rates? |
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Definition
| money supply inreases, interest rates decline |
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