Show Me The Money
___ is any commodity or token that is generally accepted as a means of payment.
Money
The notes (dollar bills) and coins that we use in the United States today are known as _____. The government declares notes to be money with the words printed on every dollar bill, “This note is legal tender for all debts, public and private.”
Currency
The amount of money that households and firms choose to hold is the ___
quantity of money demanded.
You’ve seen that banks hold reserves of currency and deposits at the Federal Reserve. The Fed requires the banks and thrifts to hold a minimum percentage of deposits as reserves. This minimum is known as a _______ The Fed determines a ____ for each type of deposit. Currently, _____ range from zero to 3 percent on checkable deposits below a specified level to 10 percent on deposits in excess of the specified level.
required reserve ratio
___ is the central bank of the United States. A central bank is a public authority that provides banking services to banks and governments and regulates financial institutions and markets.
The Fed
____ is a method of settling a debt. When a ____ has been made, the deal is complete. Suppose that Gus buys a car from his friend Ann. Gus doesn’t have enough money to pay for the car right now, but he will have enough three months from now, when he gets paid. Ann agrees that Gus may pay for the car in three months’ time. Gus buys the car with a loan from Ann and then pays off the loan. The loan isn’t money. Money is what Gus uses to pay off the loan.
Means Of Payment
____ consists of currency held by individuals and businesses, traveler’s checks, and checkable deposits owned by individuals and businesses.
____ is determined by the actions of the banking system and the Fed. On any given day, ____ is fixed.
money supply
Banks’ liquid assets are short-term Treasury bills and overnight loans to other banks. The interest rates on liquid assets are low but they are low-risk assets. The interest rate on interbank loans, ____, is the central target of the Fed’s monetary policy actions.
Federal Funds Rate (between banks)
You’ve seen that the ____ is the sum of coins, Federal Reserve notes, and banks’ deposits at the Fed. The size of the ____ limits the total quantity of money that the banking system can create because banks have a desired level of reserves and households and firms have a desired level of currency holding and both of these desired holdings of the monetary base depend on the quantity of money.
The Monetary Base
_____ is an object that is generally accepted in return for goods and services.
Medium of exchange
An agreed upon measure for stating the prices of goods and services is called a _____. To get the most out of your budget, you have to figure out whether going to a rock concert is worth its opportunity cost.
Unit of Account
_____ is the relationship between the quantity of money demanded and the nominal interest rate, when all other influences on the amount of money that people wish to hold remain the same.
The demand for money
____ is the interest rate at which the Fed stands ready to lend reserves to commercial banks. A change in the ___ begins with a proposal to the FOMC by at least one of the 12 Federal Reserve Banks. If the FOMC agrees that a change is required, it proposes the change to the Board of Governors for its approval.
Discount Rate (between the Fed and the bank)
A bank’s ____ are its actual reserves minus its desired reserves. When the banking system as a whole has ____ banks can create money by making new loans. When the banking system as a whole is short of reserves, banks must destroy money by decreasing the quantity of loans.
Excess Reserves
Without money, you would have to exchange goods and services directly for other goods and services—an exchange called _____. _____ requires a double coincidence of wants. For example, if you want a soda and have only a paperback novel to offer in exchange for it, you must find someone who is selling soda and who also wants your paperback novel. Money guarantees that there is a double coincidence of wants because people with something to sell will always accept money in exchange for it. Money acts as a lubricant that smoothes the mechanism of exchange.
Barter or Bartering
____ consists of M1 plus savings deposits and time deposits (less than $100,000), money market funds, and other deposits. Time deposits are deposits that can be withdrawn only after a fixed term. Money market funds are deposits that are invested in shortterm securities.
M2
The ____ is the number by which a change in the monetary base is multiplied to find the resulting change in the quantity of money. It is also the ratio of the change in the quantity of money to the change in the monetary base. The magnitude of ___ depends on the desired reserve ratio and the currency drain ratio. The smaller are these two ratios, the larger is the____
the money multiplier
____ is the purchase or sale of government securities— U.S. Treasury bills and bonds—by the Federal Reserve in the economy When the Fed conducts ____, it makes a transaction with a bank or some other business but it does not transact with the federal government. The New York Fed conducts the Fed’s______
An open market operation
____ is the Fed’s main policymaking committee. The ____ consists of the following twelve members: • The Chair and the other six members of the Board of Governors • The president of the Federal Reserve Bank of New York • Four presidents of the other regional Federal Reserve Banks (on a yearly rotating basis) The ____ meets approximately every six weeks to review the state of the economy and to decide the actions to be carried out by the New York Fed
FOMC
Money in the world today is called ____. ____ is a Latin word that means decree or order. ____ is money because the law decrees it to be so. The objects used as money have value only because of their legal status as money.
Fiat Money
Any commodity or token that can be held and exchanged later for goods and services is called ____. Money acts _____. If it did not, it would not be accepted in exchange for goods and services.
Store of Value
Define DROPIT
Discount Rate
Reserve Ratio
Open Market
Prices
Income/Investment GDP
Tech (Fintech)
Quantitative Easing (QE) When the Fed creates bank reserves by conducting a largescale open market purchase at a low or possibly zero federal funds rate, the action is called quantitative easing. There have been three episodes of quantitative easing: QE1, QE2, and QE3—see Eye on Creating Money on pp. 714–715.
Credit Easing When the Fed buys private securities or makes loans to financial institutions to stimulate their lending, the action is called credit easing.
Operation Twist When the Fed buys longterm government securities and sells shortterm government securities, the action is called Operation Twist. The idea is to lower longterm interest rates and stimulate longterm borrowing and investment expenditure. An Operation Twist was conducted in September 2011.
These are all ___
Extraordinary Crisis Measures
___ is the chair of the federal reserve
Jerry