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econ unit test
econ unit test
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central banking
12th
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107 Terms
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1
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us treasury, financial institutions, federal reserve system
what three organizations create money in the us
2
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minting and selling coins to federal reserve banks
how does the us treasury create money?
3
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lending consumer’s deposits to other individuals who redeposit money to other institutions
how do financial institutions like commercial banks create money?
4
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federal reserve bank
most new money begins its life where?
5
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federal reserve bank
what is the us central bank
6
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currency, regulating banking activity, acting as the government’s bank, controlling money supply
what is the federal reserve bank responsible for?
7
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1913
year the us established a central bank
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12
congress divided the nation in to how many districts, each with a central bank
9
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tasks of district banks
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three bankers, three businesspeople, three representatives of the public
members of the board of directors
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district bank
what does the board of directors supervise?
12
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Fed’s Board of Governors and the Federal Open Market Committee
who makes virtually all decisions regarding the money supply
13
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seven
number of people on the board of governors
14
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president appoints them, congress confirms them
how are members of the board of governors selected
15
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reserve requirement
a specified percentage of depositors’ money that must be kept on hand by banks
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supervise commercial and 12 district federal reserve banks, enforcing customer protection laws
what does the board of governors do?
17
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federal open market committee
FOMC stands for
18
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board of governors (7) and five federal reserve district bank presidents
members of the FOMC
19
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politically, financially, operationally
three ways the federal reserve system is independent
20
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term on the board of governors expires every two years
how is the fed politically independent
21
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sets and operates under its own budget
how is the fed financially independent?
22
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financial records are exempt from audit; no one may dictate its actions
how is the fed operationally independent?
23
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congress may remove members from the board of governors for cause, and the fed depends on congress by its existence as it was created by congress
two checks on the fed’s power
24
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provide uniform currency, regulate member banks, clear checks, acts as a fiscal agent, serves as banker’s bank, creates money
functions of the federal reserve system
25
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elastic currency
a money supply that can be expanded or contracted
26
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us treasury
who creates federal reserve notes
27
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monetary control act of 1980
what act did congress establish in order to prevent banks from escaping regulations by going to state banks?
28
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clearing
every check or debit card transaction requires
29
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fiscal agent
an entity such as a bank that handles financial matters for another party
30
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holds government’s checking account, makes loans to us treasury, gives government financial advice
three parts of the fed’s role as the government’s fiscal agent
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run on the bank
a rush of depositors to the bank seeking to withdraw their money
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the fed
who is the lender of last resort
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lender of last resort
an agency able to lend money to banks when a greater than expected number of depositors wants to receive cash from their accounts
34
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the money multiplier effect
to increase the money supply, the fed relies heavily on
35
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money multiplier effect
the expansion of the money supply as a result of commercial banks’ lending their depositors’ money to to others
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money multiplier
the factor that represents the number of times a deposit may be multiplied as it experiences the money multiplier effect
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banks don’t lend all excess reserves, and people won’t redeposit the whole amount
why is the money multiplier unreliable?
38
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discounting
the lending of money to banks by the federal reserve system
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discount rate
the interest rate charged by the fed to banks for borrowed money
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changing discount rate, changing reserve requirement, using open market operations
three tools of money creation
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open market operations
the purchase or sale of government securities by the federal reserve system to inject or withdraw money from the money supply
42
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reduces, slows
increasing discount rate _ the money supply and _ the economy
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increases, accelerates
decreasing discount rate _ the money supply and _ the economy
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reduces, slows
increasing reserve requirement _ money supply and _ the economy
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increases, accelerates
decreasing reserve requirement _ money supply and _ the economy
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slowed
rising interest rates mean that the economy is
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accelerating
falling interest rates indicate that the economy is
48
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monetary policy
the increasing or decreasing of money supply in order to influence the economy
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tight monetary policy
the use by the federal reserve system of one or more of the policy tools to reduce the money supply
50
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loose monetary policy
the use by the federal reserve system of one or more of its policy tools to increase the money supply
51
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inflation, slow economic growth and unemployment
a tight monetary policy tends to curb _, but can increase risk of
52
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economic growth; inflation
a loose monetary policy tends to encourage _ but makes _ more likely
53
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less
as interest rates rise, people will borrow _ money
54
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more
as interest rates fall, people will borrow _ money
55
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demand would exceed supply aka overheating
what would happen if the fed continued to print money beyond the limits of the economy
56
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decrease growth rate of money supply and cause interest rates to rise
how can an overheated economy be cooled down?
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money
anything a society commonly uses and generally accepts in payment for goods and services
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legal tender
a form of money that the government declares must be accepted by creditors if it is tendered by a debtor
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means of payment for goods and services, measure of value, means of storing purchasing power
three functions of money
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barter
exchange of one person’s goods and services for another’s
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coincidence of wants
both parties of a trade wanting what the other has to offer
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more effective than barter
money as a means of payment means that it is
63
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standard of measurement
money as a means of value means that it can be used as a
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it retains face value over time
money as a means of storing purchasing power means that
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convenience, portability, divisibility, durability, stability
desirable characteristics of money
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commodity, representative, fiat
three kinds of money
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commodity money
a single commonly used good becomes the medium of exchange
68
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salt, gold, seashells
commodity money examples
69
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inflation
commodity money tends to lead to
70
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full-bodied coin
a coin contains an amount of gold or silver equal to its face value
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token coin
a coin contains a quantity of metal less than its face value
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representative money
money that represents a commodity that some entity holds in store
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fiat money
money without gold or something of substantive value backing it
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faith that others will accept money, limited quantity of money that exists
what keeps the fiat money system functioning
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M1
measure of money Americans have available for immediate spending
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M1
paper and coin money held by the public, traveler’s checks, checking accounts
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M2
money consumers could immediately spend and all money available to spend after a short delay
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M2
includes a variety of savings accounts
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fractional reserve banking
a banker lends more paper money than he can back in gold
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financial market
collection of organizations that assist households in channeling their money to businesses and the government
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commercial banking industry
largest participant in the financial market
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commercial banks
function by accepting deposits from customers and making loans
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free banking
no national banking system
84
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1836-1864
free banking occurred from
85
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national banking act
to end confusion over worth of bills and provide revenue for the government after the civil war, what act was passed
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established national banks, uniform currency, taxes on currency of private banks (broke many private banks)
national banking act did what
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dual banking (state and federally chartered)
national banking act left america with what system
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charter
authorizations for banks to exist
89
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us treasury’s comptroller of the currency
federal authorization comes from the
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state banking commissions
state authorization comes from
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comptroller of the currency
supervises and regulates banks with national charters
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federal reserve bank
regulates state banks that choose to join the federal reserve system
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federal deposit insurance corporation
banks that don’t join the frs but desire to be insured
94
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state banking authority
state banks that are not members of the frs or ensured by fdic are under the supervision of
95
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accept deposits, extend loans, provide miscellaneous services
three roles that commercial banks play in the us financial market
96
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savings and loan, mutual savings banks, credit unions
types of thrift institutions
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thrifts
encourage personal saving and provide loans to meet personal needs
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savings and loan association
financial institution designed to collect savings and use that capital to make loans
99
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mutual savings banks
similar to savings and loans except for technicalities; almost exclusively in the northeast
100
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credit unions
originate with groups of people with a common interest’ pool savings of members and make consumer loans available
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