econ test

Medium of exchange

A function of money that allows it to be used to buy goods and services.

Unit of account

A function of money that provides a standard measure of value for goods and services.

Store of value

A function of money that allows it to be saved and retrieved in the future without losing value.

Commodity money

Money that has intrinsic value, such as gold or silver.

Medium of exchange

A function of money that allows it to be used to buy goods and services.

Unit of account

A function of money that provides a standard measure of value for goods and services.

Store of value

A function of money that allows it to be saved and retrieved in the future without losing value.

Commodity money

Money that has intrinsic value, such as gold or silver.

Representative money

Money that has no intrinsic value but can be exchanged for something of value, like gold.

Fiat money

Money that has value because the government says it does; not backed by a physical commodity.

Durable

A characteristic of money meaning it must withstand physical wear and tear.

Portable

A characteristic of money meaning it must be easy to carry and transfer.

Divisible

A characteristic of money meaning it can be divided into smaller units of value.

Uniform

A characteristic of money meaning each unit must be the same as every other unit.

Limited in supply

A characteristic of money meaning it must be available only in certain amounts to maintain its value.

Widely accepted

A characteristic of money meaning people must trust and use it in transactions.

Monetary policy

Actions by a central bank (like the Fed) to manage the money supply and interest rates to influence the economy.

Reserves / Reserve requirement

The portion of depositors’ balances that banks must keep on hand; set by the Federal Reserve.

Federal funds rate

The interest rate at which banks lend reserves to each other overnight.

Discount rate

The interest rate the Federal Reserve charges banks for loans.

Federal Reserve

The central bank of the United States that manages monetary policy and regulates banks.

Board of Governors

The main decision-making body of the Federal Reserve, consisting of 7 members appointed by the president.

FOMC (Federal Open Market Committee)

A committee within the Federal Reserve that oversees open market operations and sets monetary policy.

Open market operations

The buying and selling of government securities by the Fed to control the money supply.

Securities

Financial instruments like bonds that can be bought or sold; used in monetary policy operations.

The desire to hold cash or deposits for transactions, precaution, or investment purposes

Medium of exchange

A function of money that allows it to be used to buy goods and services.

Unit of account

A function of money that provides a standard measure of value for goods and services.

Store of value

A function of money that allows it to be saved and retrieved in the future without losing value.

Commodity money

Money that has intrinsic value, such as gold or silver.

Medium of exchange

A function of money that allows it to be used to buy goods and services.

Unit of account

A function of money that provides a standard measure of value for goods and services.

Store of value

A function of money that allows it to be saved and retrieved in the future without losing value.

Commodity money

Money that has intrinsic value, such as gold or silver.

Representative money

Money that has no intrinsic value but can be exchanged for something of value, like gold.

Fiat money

Money that has value because the government says it does; not backed by a physical commodity.

Durable

A characteristic of money meaning it must withstand physical wear and tear.

Portable

A characteristic of money meaning it must be easy to carry and transfer.

Divisible

A characteristic of money meaning it can be divided into smaller units of value.

Uniform

A characteristic of money meaning each unit must be the same as every other unit.

Limited in supply

A characteristic of money meaning it must be available only in certain amounts to maintain its value.

Widely accepted

A characteristic of money meaning people must trust and use it in transactions.

Monetary policy

Actions by a central bank (like the Fed) to manage the money supply and interest rates to influence the economy.

Reserves / Reserve requirement

The portion of depositors’ balances that banks must keep on hand; set by the Federal Reserve.

Federal funds rate

The interest rate at which banks lend reserves to each other overnight.

Discount rate

The interest rate the Federal Reserve charges banks for loans.

Federal Reserve

The central bank of the United States that manages monetary policy and regulates banks.

Board of Governors

The main decision-making body of the Federal Reserve, consisting of 7 members appointed by the president.

FOMC (Federal Open Market Committee)

A committee within the Federal Reserve that oversees open market operations and sets monetary policy.

Open market operations

The buying and selling of government securities by the Fed to control the money supply.

Securities

Financial instruments like bonds that can be bought or sold; used in monetary policy operations.

Compare the three roles/uses of money.

Medium of exchange –

Used to buy goods and services.

Compare the three roles/uses of money.

Unit of account –

Provides a standard for comparing the value of goods and services.

Compare the three roles/uses of money.

Store of value –

Maintains value over time, allowing savings.

Identify and describe the six characteristics of money.

Durable –

Lasts over time.

Identify and describe the six characteristics of money.

Portable –

Easy to carry.

Identify and describe the six characteristics of money.

Divisible –

Can be broken into smaller units.

Identify and describe the six characteristics of money.

Uniform –

All units are the same.

Define the three types of money.

Representative money –

Can be exchanged for something of value.

Define the three types of money.

Fiat money –

Has value by government decree; not backed by a commodity.

What is Commodity Money?

Money with intrinsic value; made of something that has value itself, like gold or silver.

What is Representative Money?

Money backed by something tangible, like gold; can be exchanged for a commodity.

What is Fiat Money?

Money that has value because the government declares it as legal tender, not backed by physical goods.

Explain the three major roles of the Federal Reserve Bank.

Regulate banks and ensure financial stability
Conduct monetary policy
Provide financial services to banks and the government

How do the laws of supply and demand affect money?

When money supply increases too much, value drops, causing inflation. When money demand increases and supply is low, money becomes more valuable, reducing inflation.

What is the relationship between Money Supply/Money Demand and price level/inflation?

High money supply > demand = inflation (prices rise).
High money demand > supply = deflation or price stability.
Balance affects overall price level and purchasing power.

How does lending create money?

When banks lend out deposits, the money is spent and re-deposited, increasing the money supply through the money multiplier effect.

Discuss the method and impact of each of the three tools of monetary policy.

Open Market Operations – Buying bonds increases money supply; selling decreases it. (Preferred tool)
Reserve Requirement – Lowering it increases lending; raising it decreases lending.
Discount Rate – Lower rates encourage borrowing; higher rates reduce it.