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18 terms

Macroeconomics Chapters 31-33

STUDY
PLAY
Representative Bank Assets
Cash (in the vault, in the ATM, etc)
Deposits at the federal reserve
loans
government securities
other assets (value of building and capital)
Representative Bank Liabilities
DDO- demand deposit and other checkable accounts
time and savings accounts
other liabilities (money borrowed from other banks for capital)
capital accounts- shareholder's money and actual value of the bank
Business of a Bank
financial intermediary that takes money from lenders and loans it to borrowers
Required Reserves
the Fed requires banks to keep a certain percentage of their cash and deposits in the Fed- the percentage amount is based on the banks' liabilities
Excess Reserves
all of the money that is not sent to the fed- the banks will make loans with this so as to earn interest
FED Assets
coins- the FED buys them with the notes they make
loans to financial institutions (number is big because of banking bailout in 2009)
government securities- the FED buys securities from banks and they can gain interest on them and help fund the federal government
FED Liabilities
federal reserve notes- issued paper money
Deposits of Financial Institutions-
Deposits of US Treasury-
capital account
functions of money
medium of exchange
unit of account
store of value
medium of exchange
money allows society to escape complications associated with barter
unit of account
money measures the relative net worth of a variety of g/s
store of value
transfers purchasing power from the present to the future
assigns a value to things
liquidity
the ease with which a thing can be converted and accepted with little or no loss of purchasing power
M1
Currency in the hands of the public and DDO
does not include currency held by the FED, US treasury, or commercial banks. also checkable deposits of the government held by banks
M2
M1+Savings Deposits+Small Time Account+Money market Mutual Fund (assortment of stocks through a company)
Usefulness of Money
Acceptability- currency and DDO are accepted as a fair medium of exchange (if PL increases exponentially, businesses may not choose to accept it)
Legal Tender- money is backed by the government
Relative Scarcity- money holds value
Setup of the Fed
led by a board of governors appointed by the president and who have long terms so they are more independent of the politicians in power
12 federal banks that are owned by the banks in its district but controlled by the BOG
Federal Open Market Committee
aids the board of governors in conducting monetary policy
directs the sale and purchase of government securities in the open market
Fractional Reserve System
in this system, banks can create money through lending
banks do not have all of the money in their vault at one time- however, the FED offers deposit insurance