Money
What is money?
Anything widely accepted as payment
What are the two main types of Depository institutions?
Credit unions and banks.
To businesses.
What does the federal reserve apply to the economy?
Monetary policy.
Who applies monetary policy?
The Federal Reserve
What are the three key functions of money?
A medium of exchange, a unit of account, and a store of value.
Which Depository institution has higher loan rates: Banks, or Credit unions.
Banks.
What is the FOMC?
The federal open market committee
How long are the periods that a person is on the board of governors?
14 years.
Tight: Slowing down the economy
Easy: Speeding up economy
What is Fiat money?
A government issued currency, like the US dollar that isn't backed by a physical commodity, but derives its value from public trust in the government.
What is fractional reserve banking?
A banking system where the bank only holds a small amount of a persons deposit, and loans out the rest to make a profit.
How much money will the Federal reserve system ensure the safety of?
$250,000
What does the FOMC consist of?
12 voting members, and 7 non voting members.
What are the goals of monetary policy?
1 Maximum employment
2 Stable Prices-Want to see CPI index stable increase
3 Moderate long-term interest rates
What are ALL 7 characteristics of money?
Divisible: Must be easily divisible so that people can purchase goods at almost any price
Portable: Must be easy to carry
Scarce: Must be relatively scarce and not easy to obtain
Acceptable: Must be widely accepted as a medium of exchange
Durable: Must be able to withstand the wear and tear of daily use
Stable: The value must remain relatively constant over long periods of time
What is a reserve requirement? What is the rate in the US?
A reserve requirement is how much of the persons money the bank must keep. The reserve requirement is 0-10%
What does the Federal reserve provide for private banks?
2:Provide check clearing
Who/what does the federal reserve make payments for and to?
To private businesses and citizens.
EX: Boeing and Social Security
What is the discount rate?
Total $ federal reserve charges banks to borrow money from Gov
What special deposits can only the banks at the FED can have?
Federal Reserve deposits.
What are the risks of a fractional reserve banking system?
If lots of people try to take their money out of the banking system in a short amount of time, they may not be able to pay everyone their money as they have loaned a majority of it out.
Who is the federal reserve funded by?
They are funded by themselves and the profits they make. They are a separate entity from the US government.
What are the four purposes of the federal reserve?
Using monetary policy to maintain full employment and price stability in order to have economic growth
Ensure the safety of the nation's banking system through regulation and supervision Up to 250,000.
Maintain stability of the financial system and contain risk in the financial markets
Provide financial services to the federal government as well as commercial banks
What would the government do in order to apply easy money policy?
They would lower interest rates and/or buy treasury bonds.