Money Supply and Federal Reserve System

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Flashcards based on key concepts from the lecture on Money Supply and Federal Reserve System.

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10 Terms

1
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What is the function of money as a medium of exchange?

Modern money allows for purchasing and selling transactions without the need for double coincidence.

2
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What should money serve as, in terms of pricing?

A unit of account, allowing items to be quoted in terms of money.

3
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What is a store of value in relation to money?

Money should function as an asset that retains its purchasing power over time.

4
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What are the desirable qualities of money?

Stable value, low opportunity cost, uniform quality, divisible, portable, and durable.

5
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How is M2 defined in terms of M1?

M2 is M1 plus savings deposits, fixed deposits, negotiable instruments of deposits, Repo, and foreign currency deposits.

6
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What role does the central bank play in Malaysia's financial system?

The central bank (Bank Negara Malaysia) regulates and oversees the banking system which includes commercial banks and other financial institutions.

7
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What is the formula for total deposits created in a banking system?

Total change in checking deposits = (initial cash deposit) x (1/reserve ratio).

8
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What happens to the money supply when the central bank buys assets?

The money supply increases as it extends the amount of reserves in the banking system.

9
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What occurs with the supply curve for money when the government raises the money supply?

The vertical money supply curve shifts to the right.

10
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What is the relationship between required reserve ratio and the amount banks can lend?

A greater required reserve ratio means banks must retain more reserves, limiting the amount they can lend out.