MCC Economics Cure Chpt.13,14
Terms
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- What are the major 2 components of the M1 Money Supply?
- Currency & Checkable Deposits
- What percentage of the US money supply consists of coins?
- 2 to 3 %
- What percentage of the US money supply consists of Federal Reserve Notes?
- 50%
- What is token money?
- Lower intrinsic value than the paper money or coinage that make up the currency.
- What are the 2 major components of Checkable Deposits?
- Checks can be issued as tender; Transfer ownership of deposits
- What institutions offer checkable deposits?
- Commercial Banks; Thrifts
- What services do thrifts offer?
- Savings & Loan; Mutual Savings; Credit Unions
- What are the 3 functions of the money supply
-
Medium of exchange
Unit of account
Store of value - What 4 major components make up M2 supply?
- MMMF; MMDA; Small Time Deposits; & M1
- What does MMMF stand for?
- Money Market Mutual Funds
- What does MMDA stand for?
- Money Market Deposit Accounts
- What are the 2 examples of a MMMF?
- CD's or US Government Securities
- What is a MMDA?
- An interest bearing account; with a miminum balance account.
- What is a feature of the MMDA?
- Can easily withdraw funs or transfer funds to a checkable account.
- A Small Time Deposit can be no greater than?
- $100,000
- Does a small time deposit earn interest?
- Yes, more interest than a MMDA.
- But there are account requirements for Small Time Deposits. What are they?
- Time Deposit - Held for a period of time; Withdrawel limitation.
- Can a Small time deposit be cashed early?
- Yes, but with a penalty
- What are the 3 "M's" of the money supply? Order from largest to smallest...
- M3, M2, M1
- What are deposits greater than $100,000?
- Large time deposits
- Generally, who owns Large Time Deposits?
- Businesses
- What M2 item has an interest bearing account, with a minimum balance requirement?
- MMDA
- What deposit earns more interest than a MMDA, but must be held for a period of time?
- Small time deposits
- What is Dt?
- Transactions Demand
- Who 2 groups make up Dt?
- Household and Businesses
- Why is Nominal GDP considered?
- Households & firms want more money if prices rise or if real input increased
- How does Dt increase?
- Larger dollar volume needed to have desired transactions
- What is Da?
- Asset Demand
- What are the financial assets of Da?
-
Corporate stocks
Private/Gvnt Bonds
Money - How does Da relate to interest?
- Varies INVERSELY with interest
- What is a low opportunity cost?
- Cheap to hold, people hold more
- What is a high opportunity cost?
- Expensive to hold money, people hold less
- What is Dm?
- Demand for money
- When nominal GDP increases, what do interest rates do?
- Interest rates increase
- What must the FED do if the economy expands without creating more money?
- Increase interest rates
- Write down the formula for Dm.
- Dm = Dt + Da
- What do we use the Dm to find?
- Equilibrium interest rate
- When nominal GDP falls, what do interest rates do?
- Interest rates decrease
- What must the FED do if the economy expands without raising interest?
- Create more money
- How do you calculate the Dm Slope?
- You add the units of Dt and Da
- How do you get Sm?
- Sm = unit position of Da
- How do you get the equilibrium?
- You create a verticle line Sm and intersect it with Dm
- FOMC?
- Federal Open Market Committee
- How many committee members?
- 12
- How many on the board of governors?
- 7
- How many presidents in the NY Federal Reserve bank?
- 1
- How many remaining presidents and duration?
- 4, on a 1 year rotating basis
- What policy does the governors aid in?
- Monetary policy
- What does the FOMC meet regularly to do?
- Purchase or sale of government securities, bills, notes, bonds
- How many reserve banks throughout the US?
- 12
- What 4 sections make up the Fed structure?
-
Board of Governors
12 Reserve banks
Commercial Banks
Public and Households - What state is the Fed head quatered?
- NY
- Who elects the FOMC?
- U.S. President & Senate
- What are the terms of the 7 board members?
- 14 years staggered, so that 1 member is replaced every 2 yrs.
- What are the terms of the Chairpersons & VP Chairpserons
- 4 years
- What are the 5 Fed functions?
-
1.Issuing Currency
2.Acting as a fiscal agent
3.Supervise Banks
4.Setting reserve requirements
5.Provide for check collection - When the FED is acting as a fiscal agent; who does it provice finacial services to?
- U.S. Government
- What 3 services do they provide the US?
-
1.Collecting large sums of money through taxation.
2. Gvnt Spending
3. Sell & redeem bonds - When the FED is Supervising the banks, what 2 services do they provide?
-
1. Provide examinations to assess bank compliance to regulation.
2. Uncover questionable practices and Fraud - When the FED provides check collection, what do they do?
- Adjust the reserves; As deposits are transfered, the Fed tracks and re-distributes funds.
- When the FED is Setting Reserve Requirements, and holding reserves, what 2 things do they do?
-
1.Accept deposits from banks and thrifts
2.Charge interest called the discount rate.