Nature and Forms of Money
What is the most liquid type of financial asset used for transactions?
Money
Name the two main factors affecting the money demand function.
Real income level and interest rate.
Which aggregate consists of cash in circulation issued by the Central Bank?
M0
What two types of banks make up the modern banking system?
Central Bank and Commercial banks
What is the formula for the mandatory reserve amount (R_m)?
R_m = D \times rr (Deposits multiplied by required reserve ratio)
What form of money consists of paper currency and coins?
Cash
What is the reason for needing cash for current transactions called?
Transaction reason
What components are added to M0 to form the M1 aggregate?
Demand deposits, time deposits, and traveler's checks
Which institution is responsible for the organization of money emission and its circulation?
The Central Bank
The formula for the simple bank multiplier.
m = 1 / rr
What do we call money held in bank accounts?
Cashless money
Which reason describes the need for cash to cover unforeseen expenses?
Reason for caution (Precautionary motive)
What is the basic formula for the Money Supply (M_s)?
Cash + Deposits
What does it mean for the Central Bank to be the "bank of all banks"?
It provides services and loans to commercial banks
If rr = 20\% and deposits are $1000, what is the required reserve amount?
$200
Which function of money allows for saving to purchase goods and services in the future?
Savings tool
What motive involves holding financial assets to increase wealth in the future?
Speculative reason
How is the M2 monetary aggregate defined?
M1 + time deposits + savings deposits
Into which two categories are commercial banks divided?
Universal commercial banks and specialized commercial banks
If rr = 20\% and deposits are $1000, what are the credit options (excess reserves)?
$800
Which function of money provides the ability to measure the value of goods and services?
Value measure
According to the Theory of Liquidity Preference, what is the main factor of demand?
The interest rate
Which aggregate includes certificates of deposit and government securities?
M3
Who is responsible for keeping the country's gold and currency reserves?
The Central Bank
This factor maintains the balance (equilibrium) in the money market.
Veriable interest rate