2021-01-08T16:36:44+03:00[Europe/Moscow] en true functions of money, most important of the functions of money, characteristics of “good” money, the concept that makes money function/what backs up the U.S. dollar, M1, M2, M3, type of money that drives policy, monetarily significant event that happened in 1914, FED characteristics, FED functions, 2019 chair of the FED, BoG, Number of members in the BoG, method by which members of the BoG are chosen, BoG term length and expiry time, FOMC, number of members in the FOMC, official who oversees the FOMC, method by which the chairman of the FED is chosen, term length and appointment time of the chairman of the FED, FDIC, function of the FDIC, RR, Reserve Requirement definition, money multiplier formula, factors that can reduce the size of the money multiplier, U.S. bonds, interest rate definition, discount rate definition, Open Market Operations definition, Quantitative easing definition, Monetary Controls, effect of the Reserve Requirement changing, effect of the discount rate changing, effect of Open Market Operations, Quantity Equation, M (Quantity Equation), V (Quantity Equation), P (Quantity Equation), Y (Quantity Equation), PY (Quantity Equation), the two assumptions about the quantity equation, velocity of money definition, velocity of money equation, Policy Rule of Neoclassical Marketers, Monetary policies to use to eradicate a recession, Monetary policies to use to eradicate inflation, reason why raising the discount rate helps to eradicate inflation, Monetary policy’s chain of effects in eradicating recessions, Monetary policy’s chain of effects in eradicating inflation, Weaknesses of Monetary Policy, liquidity trap definition, Characteristics of monetary policy, economic condition in which fiscal policy is less effective, Weakness of fiscal policy, effect of crowding out, best option for eradicating recessions, Timing of policy’s types of lag, function of the 11 leading indicators flashcards

Macroeconomics 142 Test 3 (from TinyCards)

This deck, custom-made for a class, contains material covered after Test 2 through Test 3. (V.6) (This deck used to be on an amazing spaced-learning service called Tinycards. You can see the original version in all its former glory here: https://web.archive.org/web/20200901050747if_/https://tinycards.duolingo.com/decks/PKTgNVsM/macroeconomics-142-test-3 (but you unfortunately can't study it from there).

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  • functions of money
    medium of exchange, store of value, and unit of account
  • most important of the functions of money
    medium of exchange
  • characteristics of “good” money
    durability, divisibility, portability, and scarcity
  • the concept that makes money function/what backs up the U.S. dollar
    an agreement
  • M1
    official money supply of the U.S.; coins, currency, checking accounts
  • M2
    M1+small time deposits; closely related to M1
  • M3
    M2+large ($200,000) time deposits
  • type of money that drives policy
    M1
  • monetarily significant event that happened in 1914
    The Federal Reserve System (FED) was established.
  • FED characteristics
    any profits go to the treasury and it promotes economic stability
  • FED functions
    controls the U.S. money supply, issues paper money, regulates banks, and is both the government’s bank and the bank’s bank
  • 2019 chair of the FED
    Jerome Powell
  • BoG
    Board of Governors
  • Number of members in the BoG
    7
  • method by which members of the BoG are chosen
    they are appointed by the president and approved by Congress
  • BoG term length and expiry time
    14 years; one expires every two years
  • FOMC
    Federal Open Market Committee
  • number of members in the FOMC
    12
  • official who oversees the FOMC
    chairman of the FED
  • method by which the chairman of the FED is chosen
    appointed by the president
  • term length and appointment time of the chairman of the FED
    4 years; one is appointed by the president on even non-presidential election years
  • FDIC
    Federal Deposit Insurance Corporation
  • function of the FDIC
    insuring the money in banks and federal deposits
  • RR
    Reserve Requirement
  • Reserve Requirement definition
    the percentage of deposited money that the FED requires banks to hold
  • money multiplier formula
  • factors that can reduce the size of the money multiplier
    people keeping cash on hand or banks holding more money than they are required to hold
  • U.S. bonds
    units of the U.S. debt that are sold when taxes do not raise enough money to fund the U.S. government
  • interest rate definition
    the percentage of money that consumers pay banks when they borrow money from them
  • discount rate definition
    the interest rate that the FED charges banks when banks borrow money from it; has an impact on the interest rate
  • Open Market Operations definition
    the buying and selling of U.S. bonds
  • Quantitative easing definition
    similar to Open Market Operations, except that the government buys securities
  • Monetary Controls
    changing RR, changing the discount rate, Open Market Operations, and Quantitative Easing
  • effect of the Reserve Requirement changing
    if it decreases, M1 increases; if it increases, M1 decreases
  • effect of the discount rate changing
    if it decreases, M1 increases; if it increases, M1 decreases
  • effect of Open Market Operations
    if the FED buys bonds, M1increases; if the FED sells bonds, M1 decreases
  • Quantity Equation
    MV=PY
  • M (Quantity Equation)
    M1
  • V (Quantity Equation)
    velocity of money
  • P (Quantity Equation)
    price level
  • Y (Quantity Equation)
    national output
  • PY (Quantity Equation)
    GDP
  • the two assumptions about the quantity equation
    V is stable and Y is equal to Y*
  • velocity of money definition
    the average number of times that each dollar is used
  • velocity of money equation
  • Policy Rule of Neoclassical Marketers
    let the money supply grow 4-5% per year
  • Monetary policies to use to eradicate a recession
    reduce the Reserve Requirement, reduce the discount rate, or buy bonds
  • Monetary policies to use to eradicate inflation
    raise the Reserve Requirement, raise the discount rate, or sell bonds
  • reason why raising the discount rate helps to eradicate inflation
    banks will be less likely to borrow money
  • Monetary policy’s chain of effects in eradicating recessions
  • Monetary policy’s chain of effects in eradicating inflation
  • Weaknesses of Monetary Policy
    the liquidity trap and the fact that many things affect investment, not just the interest rate
  • liquidity trap definition
    the situation in which interest rates are so low that they do not respond to additional money stimulation
  • Characteristics of monetary policy
    it’s less effective during recessions (the worse the recession, the less effective it is) but works fine for inflation
  • economic condition in which fiscal policy is less effective
    mild recession
  • Weakness of fiscal policy
    crowding out: government borrowing “crowds out" private spending because interest rates are higher
  • effect of crowding out
    the government spends more money, which stimulates the economy, but that also causes higher interest rates, which causes firms to spend less money
  • best option for eradicating recessions
    combining fiscal policy and monetary policy
  • Timing of policy’s types of lag
    recognition lag, action lag, and impact lag
  • function of the 11 leading indicators
    they can be used to predict recessions