Econ Exam

3 functions of money

The three primary functions of money are to serve as a medium of exchange, a unit of account, and a store of value.

What is m1 and m2 and what are they composed of

M1 is composed of the most liquid forms of money, including cash and checking deposits, while M2 includes M1 plus savings accounts and time deposits.

The Structure of the federal reserve system

The structure of the Federal Reserve System consists of a Board of Governors, twelve regional Federal Reserve Banks, and numerous member banks, which collectively oversee monetary policy and regulate the banking system.

Open Market Operations

refers to the buying and selling of government securities by the Federal Reserve to influence the money supply and interest rates.

Intrest on Reserve Balances

is the interest paid by the Federal Reserve to depository institutions on their reserve balances held at the central bank, which helps to control the money supply and influence lending.

Discount Rate

The interest rate charged by the Federal Reserve to commercial banks for short-term loans, which influences overall economic activity.

Reserve Requirement

is the minimum amount of reserves that banks must hold against deposits, as mandated by the Federal Reserve, influencing the amount of money that banks can loan out.

Types of Banking sytesms

include commercial banks, investment banks, and credit unions, each serving different functions within the financial system.

How does a bank create money

A bank creates money through the process of accepting deposits and issuing loans, effectively expanding the money supply in the economy.

The Federal Funds Rate

is the interest rate at which depository institutions lend reserve balances to other depository institutions overnight, influencing monetary policy.

The Main problems the fed faces when controlling the money supply

include managing inflation, unemployment, and financial stability while balancing economic growth.

What are bank runs and how they impact the money supply

Bank runs occur when a large number of customers withdraw their deposits simultaneously due to fears about the bank's solvency. This can lead to a decrease in the money supply as banks are forced to liquidate assets to meet withdrawal demands.