Term
| Besides gold, what else has been used as money? What do we know about the US using gold, silver, and paper money over the past 240 or so years? When did we stop using gold in various ways? What do we know about banks and states issuing money in US history? |
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Definition
| Silver, paper notes, and banknotes. U.S. used bimetallism, then greenbacks, then a gold standard (ended domestically 1933, fully 1971). States and private banks issued notes until National Banking Acts largely ended state bank notes. |
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Term
| Why does your professor say we have a faith based financial system? |
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Definition
| Fiat money has no commodity backing. Its value rests entirely on public confidence that it will be accepted and not inflated away. |
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Term
| What does standard economic theory say about the relationship between money and prices? Money and interest rates? Money and GDP? |
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Definition
| Long run: more money → higher prices (quantity theory). Short run: more money can lower interest rates. Long run: money is neutral for real GDP. |
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Term
| How do banks create money? |
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Definition
| Through fractional-reserve lending. Loans create new deposits, and the process multiplies the initial reserves into a larger money supply. |
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Term
| What are the functions of a central bank? Why did Jackson kill the Bank of the United States, and why is the same problem not appearing (supposedly at least) with the Fed? |
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Definition
| Issue currency, lender of last resort, regulate banks, and conduct monetary policy. Jackson saw the Bank as unconstitutional and a dangerous concentration of privilege. The Fed is structured to be more independent and regionally balanced. |
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Term
| How is the Federal Reserve structured, who runs it, why is it supposed to be independent and how is that supposed to be achieved? How does it control the money supply and interest rates? |
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Definition
| 12 regional banks + Board of Governors (7 members, 14-year terms). FOMC sets policy. Independence via long terms and self-funding. Controls rates mainly through open-market operations, interest on reserves, and the discount rate. |
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