Unit of Account
a means for comparing the values of goods and services
Store of Value
Something that keeps its value if it is stored rather than used
Checkable deposits are classified as money because
they can be readily used in purchasing goods and paying debts
In defining M1 economist exclude time deposits because
they are not directly or immediately a medium of exchange
M1 is
Currency and Checks
M2 is
Saving, deposits, money market disposable, and small time deposits
M3 is
large time deposits
An excessive increase in the money supply will
decrease the purchasing power of each dollar
Coins held in commercial banks are
not part of the money supply
The twelve Federal Reserve Banks are
owned and operated by the U.S. Treasury
Federal Reserve members serve
14-year terms
The seven members of the Board of Governors of the Federal Reseve System are
appointed by the President with the confirmation of the Senate
Commercial banks and thrift institutions
have been becoming increasingly similar in recent years
What describes the identity embodied in a balance sheet
Assets equal liabilities plus Net Worth
The reserves of a commercial bank consist of
deposits at the Federal Reserve Bank and Vault cash
Money is destroyed when...
loans are repaid
Excess Reserves of Banks
difference between actual reserves and required reserves
The amount that a commercial bank can lend is determined by its
excess reserves
Commercial banks create money when they
create checkable deposits in exchange for IOU's
When a bank loan is repaid the supply of money is...
decreased
When commercial banks use excess reserves to buy government securities from the public
new money is created
The multiple by which the commercial banking system can expand the money supply is equal to the reciprocal of
the reserve ratio
If the monetary authorities want to reduce the monetary multiplier they should...
raise the legal reseve ratio
When a commercial bank borrows from a Federal Reserve Bank
commercial bank's lending ability is increased
The Fed can change the money supply by...
1.changing bank reserves through the sale or purchase of government securities
2. Changing the quantities of required and excess reserves by altering the legal reserve ratio
3. Changing the discount rate so as to encourage or discourage commercial banks i
The purchase of government securities from the public by the Fed will cause
the money supply to increase
When the reserve requirements is increase
the excess reserves of member banks are reduced
If severe demand-pull inflation was occurring in the economy, proper government policies would involve a government
surplus and the sale of securities in the open market, a higher discount rate and higher reserve requirements
Generally, the prime interest rate
moves in the same direction as the Federal funds rate
To increase the Federal Funds rate the Fed can...
sell government bonds to commercial banks
The Federal Funds rate is
lower than the prime interest rate
If the Fed wants to lower the Federal funds rate, it should...
buy government securities in the open market