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Life Econo
Chapter 7,8,16
| Term | Definition |
|---|---|
| Value of Money | measure by the goods, services, and resources that money can purchase |
| Value of money ________ during inflation | decreases |
| What are the 3 functions of money | 1. medium of exchange 2. measure of value 3. method for storing wealth and delaying payment |
| M1 | coins, paper money, travelers checks, checkable deposits |
| Demand Deposits | Checking account balance |
| Other cheackable deposits | interest bearing accounts |
| velocity | average number of times the money supply is turned over in a year in relation to the GDP |
| Commodity Monetary standards | economy's money is backed by something of tangible value (gold/silver) |
| What monetary standard does the US run under now? | paper standard |
| What monetary standard did the US run under? | commodity monetary standards |
| Financial Depository Institutions | institutions that accept and maintain deposits and make loans...make $$$$$ |
| Commercial Banks | primary financial depository institutions. Hold and maintain checking accounts. |
| Dual Banking System | national banks and state banks, can charter banks |
| FDIC | guarantee depositors with accounts of less than a specified amount (250,000) |
| Bank Failure | loan loses and deposit withdrawl |
| Federal Reserve System | 1. oversees money supply 2. coordinates commercial banking operations 3. regulating parts of depository institutions |
| Board of Governors | responsible for key monetary decisions. 7 members for 14 yr terms. appointed by president confirmed by senate. |
| Open market Commmittee | oversees the buying and selling of government securities by the Fed, includes board of governors and 5 district bank presidents. |
| Reserve account | deposit in the name of a financial institution held at a federal reserve bank or other designated place |
| Equation of exchange | MV=PQ or total spending=dollar value output |
| how is $ created? | when banks make loans |
| how is $ destroyed? | loans are repaid |
| Actual reserves | reserve account + vault cash |
| reserve requirements | specific % of deposits that a financial depository institution must keep as actual reserves (always a %) |
| Excess Reserves | deposits X reserve requirements |
| Excess reserves | actual reserves - required reserves |
| Banks can make loans up to a banks ______ ______ | excess reserves |
| Interest Rate | price paid to borrow money |
| Easy money policy | increase excess reserves and decrease interest rates to increase spending. FIGHT UNDEMPLOYMENT |
| Tight money policy | reduce excess reserves and raise interest rates to reduce spending FIGHT INFLATION |
| Monetary Policy Tools | reserve requirement, discount rate, open market operations |
| Reserve requiremnts | decreases in the reserve requirement would increase excess reserves and stimulate the economy. increases in the reserve requirement would decrease excess reserves and fight demand-pull inflation. |
| Discount Rate | interest rate that a fed reserve bank charges a financial depository institution for borrowing reserves |
| Open market operations | buying and selling of US securities by fed reserve |
| monetizing the debt | increasing the money supply by the fed reserve to accommodate federal government borrowing |
| International Trade | buying and selling of goods and services among different countries |
| Exports | SOLD (injection)- capital goods |
| Imports | PURCHASED (leakage)- industrial supplies |
| Who does the US trade with the most? | China, Canada, Mexico, North America, Europe, Asia |
| Specializatoin | lessen scarcity. productive resources concentrate on a narrow range of tasks or the production of a limited variety of goods and serves. |
| Comparative Advantage | 1 country has a lower opportunity cost of production a good or service than another country. |
| Tariff | tax on import |
| Quota | restriction on the quantity of an item that can be imported into a country |
| embargo | ban on trade or product on commodity or country |
| arguments for free trade | markets expand leading to more specialization. increases availability of goods and lower prices. trade and competition increases |
| arguments for protectionism | protects infant industries, protect domestic employment and output, diversification, national security. |
Created by:
rperrault1
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