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Chapter 8 Money the Price Level and Inflation
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Functions of money
Medium of exchange
Unit of account
Store of value
Medium of exchange
Eliminates double coincidence of wants, or barter.
Unit of Account
An agreed measure for stating the prices of goods and services
Store of value
It can be held and exchanged for later goods and services
Food is not a good store of value because it rots
Inflation lowers the value of money over time
Depository Institutions
Commercial Banks
Thrift Institutions
Money market mutual funds
Depository Institution Benefits
Create Liquidity - get money when I want
Pool Risk - one mistake spread over many ppl
Lower cost of borrowing - spread cost of activity
Lower cost of monitoring borrowers
A commercial bank puts the depositors’ funds into four types of assets:
Reserves
Liquid assets
SecuritiesÂ
Loans
Reserves
Notes and coins in depository institutions vault or its deposit at the Federal Reserve
Liquid assets
U.S. government Treasury bills and commercial bills
Can be sold and instantly converted into reserves with no risk
Loans
Commitments of fixed amounts of money for agreed-upon periods of time
Financial innovation
The development of new financial products with the goal to lower the cost of deposits or to increase the return from lending
Federal Reserve System
Central bank of the US.
A bank's bank and public authority that regulates a nation's depository institutions and conducts monetary policy
Adjusts quantity of money in circulation and influences interest rates
Fed Structure
Board of Governors
The regional Federal Reserve banks
The Federal Open Market Committe
The Board of Governors
7 members
Appointed by the PresidentÂ
14 year terms (staggered) one seat becomes available every 2 years
The Federal Open Market Committe
Main policy making group
Fed's assets
1. US government securities
2. Loans to depository institutions
Fed's Liabilities
1. Federal Reserve notes in circulation (MONEY in my pocket)
2. Depository institution deposits
Monetary base
Sum of the Federal Reserve notes, coins, and depository institutions' deposits at the Fed
Author
aburke2012
ID
288926
Card Set
Chapter 8 Money the Price Level and Inflation
Description
ECON 202
Updated
2014-11-12T01:20:42Z
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