45 Cards in this Set
| Front | Back |
|---|---|
|
Money
|
-set of assets that people regularly use to buy goods and services
|
|
Money demand
|
-the desire to hold assets in their most liquid form
|
|
Money Supply
|
-The amount of money available in the economy as determined by the fed
-Not depended on factors such as I, P, or Y
|
|
Commodity money
|
-Commodity that serves the function of money but also has intrinsic value
-ex. gold, sugar, tobacco
|
|
Fiat money
|
-A commodity that serves the function of money but has no intrinsic value
-ex. dollars, quarters, euros
|
|
To be considered money:
|
1. Medium of Exchange
2. Unit of Account
3. Store of Value
|
|
Liquidity
|
-the ease of converting an asset into cash
|
|
M1
|
-cash
-checkable deposits
-traveler's checks
|
|
M2
|
-M1
-savings accounts
-CD's
-Retail money funds
|
|
Federal Reserve Structure
|
-12 regional banks
-Board of Governors (7 members)
-12 member voting committee
|
|
Federal Depositoty Institution
|
-Accepts and maintains deposits and makes loans
|
|
Bank Assets
|
-reserves: cash on hand
-loans to customers (money owed to the banks)
|
|
Bank Liabilities
|
-Deposits (money the bank owes to you)
|
|
Required Reserve Ratio
|
-Percent of deposits that banks must hold in the form of reserves
|
|
Money Multiplier
|
1/rr
-used to determine the final amount of the money supply after the entire process is completed
|
|
Federal Reserve Tools
|
-Open Market Operations
-Required Ratio
-Discount Rate
|
|
Open market operations
|
When fed buys or sells securities in the open market
-to increase the money supply the fed will buy bonds (pumps cash into economy because there is more money to lend out)
|
|
Discount Rate
|
-The interest rate the federal reserve charges member banks for short-term loans
-to increase money supply, the fed lowers the discount rate
|
|
Reserve Requirement
|
-percentage of deposits are required to hold as reserves
-to increase money supply, fed lowers rr (if banks reduce reserves, they can lend more)
|
|
Budget Surplus
|
-when yearly government tax receipts are greater than expenditures
|
|
Budget Deficit
|
-when yearly government tax receipts are less than expenditures
-Government must borrow (sell gov. bonds) to make up the difference
|
|
Debt Ceiling
|
-the maximum legal limit of the U.S. debt, as set by Congress
|
|
National Debt
|
-17.5 trillion
-Intragovernment holding: $5 trillion
-U.S. Owned: $6.5 trillion
-Foreign owned: $6 trillion
|
|
Fiscal Policy
|
-Manipulation by the government of the AD and AS in order to achieve some macroeconomic goal
|
|
Expansionary fiscal policy
|
-gov. policies to try and shift AD right
-when output is below potential, unemployment is above natural rate
-main tools: decrease tax rate, increase spending
|
|
Contractionary fiscal policy
|
-policies taken by the government to try and shift AD to the left
-when output is higher than potential, and inflation is high
-Main tools: increase tax rate, decrease gov. spending
|
|
Marginal Propensity to Consume
|
-MPC
-how much of an extra dollar that households spend (rather than save)
|
|
Expansionary AS fiscal policy
|
-enact policies that promote production
-lower wages, encourage technology advancements, business tax cuts
-lowers cost, increases output
|
|
Transaction demand
|
-walking around money
-every day purchases and items
|
|
Speculative demand
|
-betting money
-have money on hand to take advantage of investment opportunities
|
|
Precautionary demand
|
-Have money on hand as precaution for unexpected events
|
|
Cost of holding money
|
-You can't invest and earn interest
|
|
Income inequality
|
-the extent to which income is distributed in an uneven manner among a population
|
|
Wealth inequality
|
-The unequal distribution of assets withing a population
-stock, bonds, homes, etc.)
-the cumulative effects of income inequality
|
|
Mobility inequality
|
-the ability (or lack) of being able to move up (or down) the economic ladder
|
|
Largest component of M1
|
Currency
|
|
Largest component of M2
|
Savings accounts
|
|
Federal Open Market Committee
|
-7 board members
-5 rotating regional bank presidents
|
|
2013 Budget Deficit
|
700 billion
|
|
Largest foreign holder U.S. debt
|
China
|
|
Velocity of Money
|
-refers to how many times money changes hands (is spent) during the year
|
|
Quantity Equation (Equation of Change)
|
-purpose is to show the relationship between a nation's money supply and the inflation rate
|
|
Federal funds rate
|
-When banks make short-term loans to one another they charge this rate
|
|
Top 1%
|
earns 20% of nation's income
-controls 40% of nation's wealth
|
|
Top 10%
|
-earns 50% of nation's income
-controls 75% of nation's wealth
|
Econ 201: Test 3