The Nature of Money
This is the term for something that serves as a medium of exchange, unit of account, and store of value.
What is money?
This is the fraction of deposits banks are required to keep on hand.
What is the fractional reserve requirement?
The money market shows the relationship between this and the quantity of money.
What is the nominal interest rate?
This is the central bank of the United States.
What is the Federal Reserve?
This is the effect of an increase in the supply of loanable funds.
What is lower interest rates?
This term describes an asset that can be easily converted into cash without loss of value.
What is liquidity?
This is the process by which banks create money through lending.
What is the fractional reserve banking system?
When the Fed increases the money supply, interest rates move in this direction.
What is decrease?
What would the Fed do to fight inflation?
Sell bonds, increase reserve requirement
What is real interest?
Nominal inflation minus anticipated inflation.
When prices rise rapidly, money loses this key function.
What is a store of value?
If the reserve requirement is 10%, a $100 deposit can create up to this much new money in the economy.
What is $1000?
If the Fed sells bonds, the money supply curve shifts in this direction.
What is left?
These are the three main tools of monetary policy.
What are open market operations, reserve requirements, and the discount rate?
Name an asset on a bank balance sheet.
Loan, Reserves, bonds
This term refers to the amount of money people hold for transactions versus for saving.
What is the demand for money?
This term describes the maximum amount a bank can lend out from new deposits.
What are excess reserves?
What will most likely happen if there is more money demanded than supplied?
Interest rates will increase.
To fight a recession, the Fed would most likely buy or sell bonds?
What is buy bonds?
When the money supply increases, how does this affect aggregate demand?
AD will shift right.
This type of money is not backed by anything.
What is fiat money?
Demand deposits are on what side of the bank balance sheet?
Liability
The money demand curve is downward sloping for this reason.
When IR increases, people exchange cash for interest earning assets.
The current Fed chair.
Who is Jerome Powell?
What will cause the money creating ability of banks in our economy to be less than their maximum ability estimated by the money multiplier?
When people hold money in cash.