Monetary Policy and Functions of Money

Barter

A basket of fish is traded for a pair of shoes.

Wampum

Used as money in Connecticut.

Items historically used as money

Tobacco, Tea Leaves, Compressed cheese.

Functions of money

Medium of Exchange, Measure of value, Store of value.

Medium of exchange requirements

It must be accepted by all parties as payment for goods and services.

Commodity money example

Gunpowder.

Fiat money example

The coins used in Asia Minor in the 7th century.

Spanish currency

The peso resembled this foreign currency.

Federal Reserve organization

It has 7 members in the Board of Governors.

Monetary policy

The deliberate actions of the federal reserve system to expand or contract the money supply.

Expansionary policy tools

Buy government securities, Lower the discount rate, Lower the reserve requirement.

Contractionary policy tools

Sell government securities, Raise the discount rate, Raise the reserve requirement.

High inflation response

Contractionary policy to decrease the money supply by raising interest rates.

Severe depression response

Expansionary policy to increase the money supply by lowering interest rates.

Inflation

Rise of prices in an economy.

Federal Reserve Notes

U.S. paper currency.

Side effect of expansionary monetary policy

Inflation.

Discount rate

Interest rate the Fed charges on loans.

Hyperinflation

Most severe type of inflation.

Chair of the Fed

Jerome Powell.

New monetary standard after gold standard

Full faith in credit, fiat money.

How banks make money on a loan

Interest.

Deflation

Decrease in general prices.

Liquidity

Ability for money to become M1 - liquidity, however it is to spend.

Stagflation

High unemployment & high inflation & stagnant economy.

Federal Reserve establishment

Under President Woodrow Wilson.

Organization to fight counterfeiting

Secret Service.

Credit union

Depository financial institution.

Tools of monetary policy

Discount rate, Reserve requirement, Market operation.

Demand deposit account

Checking account.

FOMC

Part of the Fed that regulates monetary policy.

Board of Governors members

The board has 7 members.

Expansionary monetary policy

Increases the money supply.

Non-depository

Type of financial institution.