Econ Money and Central Banking Study Guide

what was the primary limitation of the barter system?

required double coincidence of wants.

the gold standard refers to?

a monetary system where currency is directly backed by gold.

what is fiat money?

currency that has value because of gov. decree.

the money multiplier effect occurs when?

banks lend out deposited money while maintaining reserves.

during the Tang Dynasty in China, what innovation in money occurred?

first use of paper money.

what typically happens to money supply when banks increase their reserve requirements?

money supply decreases.

the term “fiat” in fiat money comes from Latin, meaning?

“let it be done.”

if a bank has a reserve requirement of 10% and receives a deposit of $1000, how much can they theoretically lend?

$100.

what was one major advantage of paper money over metal coins?

it was easier to transport.

in a fractional reserve banking system, banks?

must keep all deposits in the vault.

the main difference between commodity money and fiat money is?

commodity money is not government-issued.

what is the primary purpose of reserve requirements?

to prevent bank runs.

under the gold standard, inflation was?

generally lower than with fiat currency.

which factor does NOT affect the money multiplier?

bank lending practices.

what historically made gold a good form of money?

it was durable and scarce.

the money multiplier formula is?

deposits/reserve\space ratio

when did the US completely abandon the gold standard?

1933.

in a barter system, which is NOT a major challenge?

divisibility of items.

what happens to money supply when people hold more cash instead of bank deposits?

money multiples decreases.

which statement about modern fiat money is FALSE?

it must be backed by gold reserves.

what is the primary purpose of the federal reserve system?

to serve as the central bank of the US.

when was the federal reserve system established?

1913.

how many federal reserve banks are there in the US?

12.

who appoints the chair of the federal reserve board of governors?

the president with senate confirmation.

what is the length of a full term for a federal reserve board governor?

14 years.

which of these is NOT a primary function of the federal reserve?

collecting federal income taxes.

what is the FOMC responsible for?

conducting monetary policy?

how often does the FOMC typically meet?

8 times per year.

which tool does the fed use to influence interest rates in the economy?

federal funds rate.

what is the dual mandate of the federal reserve?

maximum employment and stable prices.

what happens when the fed implements an expansionary monetary policy?

money supply increases.

who owns the federal reserve banks?

member banks in their districts.

what is the feds primary tool for providing emergency funding to banks?

the discount window.

how does the federal reserve earn income?

interest on securities and loans.

what role does the fed play in check processing?

operates the national check-clearing system.

which statement about federal reserve notes is correct?

they are obligations of the federal reserve.

what is the primary purpose of bank reserve requirements?

to ensure banks have sufficient funds.

how is the federal reserve system funded?

through its financial operations.

what is the main purpose of fed stress tests on banks?

to assess financial resilience.

which group determines monetary policy in the US?

the FOMC.