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41 Cards in this Set
- Front
- Back
money |
anything that is widely acceptable as payment for goods and services and as repayment for debt |
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wealth |
the total collection of pieces of property that serve to store value |
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income |
flow of earnings per unit of time |
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medium of exchange |
used to pay for goods and services |
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transaction cost |
time spent paying for goods or services |
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unit of account |
used to measure value in an economy |
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store of value |
must store purchasing power over time |
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liquidity |
the ease and speed at which an asset can be converted into a medium of exchange |
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hyperinflation |
inflation rate exceeds more than 50% a month |
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commodity money |
money made up from valuable commodities |
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fiat money |
paper money decreed by governments as legal tender |
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money aggregates |
measure of the money supply |
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M1 |
currency; travelers checks; demand deposits; other checkable deposits |
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m1 currency |
paper money and coins in the hands of the nonbank public and does not include cash in ATMs or bank vaults |
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m1 travelers checks |
only travelers checks not issued by banks |
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m1 demand deposits |
business checking accounts that do not pay interest, and travelers checks issued by banks |
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m1 other checkable deposits |
interest bearing checking accounts held by households |
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m2 |
m1 + assets that have check writing features( money market deposit accounts and money market mutual fund shares), savings deposits, small denomination time deposits |
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m2 savings deposits |
nontransaction deposits than can be added to or taken out of at anytime |
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m2 small denomination time deposits |
certificates of deposit with a denomination of less than 100,000 that can be redeemed only at a fixed maturity date without a penalty |
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m2 money market mutual fund shares |
retail accounts on which households can write checks |
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m2 money market deposit accounts |
similar to money market mutual fund shares but issued by banks |
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greshams law |
bad money will drive out the good |
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representational currency |
currency units that have little or no commodity value, but explicitly represent commodity value |
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quantity theory of money |
theory of how the the nominal value of aggregate income is determined, theory for the demand for money
interest rates have no effect on the demand for money |
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velocity of money |
average amount of times per year a dollar is spent in buying the total amount of goods and services produced in the economy. |
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velocity equals |
P x Y / M, regarded as constant or Y/L(i,Y) |
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P x Y |
nominal gdp or aggregate nominal income |
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equation of exchange |
M x V = P x Y |
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demand for money |
M^d = k x PY |
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price level equation |
M x V / Y Y constant |
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inflation equation |
%change P = change M + change V(constant) - change Y |
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QTOM long run and short run |
good theory of inflation in long run, but not the short run |
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liquidity preference framework |
real money balances negatively related to nominal interest rate and positively related to real income |
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liquidity equation |
M^d/P = L(i,Y) |
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federal reserve banks |
12 main banks with other branch cities 9 directors each owned by private commercial banks in the district (banks have purchased stock in FRB) |
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FRB functions |
clear checks, issue currency, discount loans, research, liaison between private and FRS, evaluate mergers |
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member banks |
all national banks are required to be part of the fed, all depository institutions had to keep deposits at the fed |
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board of governors |
7 members, appointed by president, form monetary policy, sets reserve requirement |
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FOMC |
board of governors + 5 presidents of the FRB (new york always included) deal with open market operations and federal funds rate |
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open market operations |
purchase and sale of governement securities that affect interest rate and amount of reserves. |