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Econ Quiz chap 09

Terms in this set (18)

Properties of Money - What are the properties of money and what do they mean?
Liquidity - ability to be reduced or changed as needed.
Scarcity - limited quantities of money and limited access to increasing the supply.
Portability - ability to be transported easily.
Uniformity/Homogeneity - ability to be easily identified and accepted on sight.
Kinds of Money - What are the kinds of money and what do they mean?
Commodity Money - Gold, silver, cattle, etc. that have intrinsic value and can be bartered.
Convertible Paper Money - paper that can be converted into gold or silver.
Inconvertible Paper Money - paper that cannot be converted into gold or silver; legal tender money. This is what our dollar bills are today.
Bank Deposits - monies deposited in banks.
Electronic Money - money stored in electronic accounts such as credit cards or bitcoin.
Functions of Money - What are the functions on money and what do they mean? Are credit cards money?
Yes, they are since they fulfill the three functions of money.
Medium of Exchange - ability to be universally accepted & removes the coincidence of wants that comes with bartering.
Unit of Measurement - a common measurement of value.
Store of Value - how much value depending on inflation.
Monetary Base - What are the different forms of the monetary base? Why is this important to know?
This influences how government makes policy regarding taxes and the budget.
M0 - tangible, liquid currency. Narrow money.
M1 - M0 & savings/checkings that can be quickly converted to M1.
M2 - M1 & long term savings like money-market funds.
M3 - M2 plus large investments that are locked in.
What is Inflation? What is the problem with inflation?
It is an increase in the average level of prices.
What is Fiat money?
Money by declaration without any intrinsic value (Inconvertible).
What is seigniorage? How does it work/why would they want to do this?
It is the revenue raised through the printing of money.
Governments can print money to pay off their debts, but this causes inflation.
What is hyperinflation? What results from this?
Inflation that exceeds 50% per month.
Money loses its role as the store of value, unit of account, and medium of exchange.
Monetary Policy - What is it?
It is control over the money supply in the US.
Monetary Policy - Who controls it?
The central bank of the US is the Federal Reserve or Fed.
Monetary Policy - How can the Fed influence this (Two main ways)?
Open Market Operations & Changing the Discount rate at which banks borrow from the Fed.
How do Open Market Operations work?
To expand monetary supply, the Fed buys US Treasury Bonds with new money.
To reduce the money supply, the Fed sells US Treasury Bonds and destroys the existing dollars that it receives.
Monetary Policy - Who handles this?
The Federal Reserve
Monetary Policy - What tools do they have?
Buying and selling securities,
lending money to banks,
& paying interest on bank reserves.
Monetary Policy - What is the purpose of this type of policy?
Promotes price stability and promotes maximum sustainable employment.
Fiscal Policy - Who handles this?
The Executive and Legislative Branch
Fiscal Policy - What tools do they have?
Spending, borrowing, and taxing.
Fiscal Policy - What is the purpose of this type of policy?
Fund government operations and services, manage economic growth,
& other goals vary with each administration.
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