Studied by 3 peoplecommodity
an item of value (ex. gold)
representative money
represents a commodity (ex. receipt for gold bar)
fiat money
money by decree (government says it is money)
medium of exchange
money is universally useable to buy stuff
store of value
money represents value that is created
unit of measure
money provides a common value system
fiat money has
no intrinsic value
the majority of U.S. money is
electronic (fiat money)
spending
trading money for goods and services
saving
loaning money to earn interest
risk equals
return
interest
driving force for people buying things
best way to save money
buying bonds
bond
a promise to repay a principal amount borrowed at a future date
maturity date
date a bond principal is to repaid
discount rate
actual amount paid for the bond (less than actual worth of bond)
asset
something a business owns that generates revenue
liabilities
something a business owes money on
demand deposits
back account ‘payable on demand’ (checking account)
loan
document where a borrower promises to repay an amount + interest
reserves
money a bank gets from people + holds on to
required reserves
money that must be held in a bank (rate determined by the fed)
powers of the fed
set discount rate
set reserve requirement
selling/buying bonds
discount rate raised
fewer loans (money supply shrinks)
discount rate lowered
more loans (money supply grows)
reserve requirement raised
fewer loans (less excess reserves)
reserve requirement lowered
more loans (more excess reserves)
the fed buys bonds
more excess reserves, more loans, MS up
the fed sells bonds
fewer excess reserves, fewer loans, MS down
federal funds rate
the rate banks pay to other banks when borrowing
administrative rate
interest rate controlled by the fed (discount rate and IOR)
policy rate
federal funds rate
bonds
securities
bond prices drop
bond yields increase
bond prices rise
bond yields decrease
limited reserve environment
the fed sets the reserve requirement
ample reserve environment
no reserve requirement (up up / down down)
interest rate on bank reserves
IOR
IOR
interest rate fed pays to banks (replaces res req)
the federal funds rate is slightly ___________ than the discount rate
lower
the federal funds rate will be slightly ______ than the IOR
higher
Note
Flashcard