Chapter 14 Review Money and Banking Bank Vocabulary
Chapter 14 Review Money and Banking
/Bank Vocabulary Terms Holding Company- a firm that owns one or more banks /Legal Reserves- coins and currency that banks hold in their vaults (lockers) /State Bank- banks that received its charter to operate from a state government /Member Bank Reserves- deposit a member bank keeps at the FED /Discount Rate - interest rate the FED charges on loans to member banks
/Silver Vocabulary Terms Certificate- paper currency backed by silver dollars /Fiat Money- anything a government decrees to be money /Medium of Exchange- something accepted as payment for goods and services /Federal Reserve Notes- paper currency by the FED /Barter Economy- economy based on trade /Regulation Z- law giving the FED authority to allow people to borrow money
Concepts /Money /As an economic good. /Determining value /Defined: /Types and characteristics: 1. Divisible /Types 2. Transferrable /Commodity 3. In limited supply 4. Durable money: money that can also be used as an economic good (tea, coffee, chocolate, salt) /Fiat money: paper and coins that the government says are money
/Easy /What /The Concepts Money Policy is it? FED expands money supply (gives out more money) /Interest rates fall /More money is in the economy /How does it effect the economy? /More spending is happening and the economy improves /Tight /What /The Money Policy is it? FED contracts money supply (gives out less money /Interest rates increase /Less money in the economy /How does it effect the economy? /Less spending is happening and no economic growth
/FOMC /What /Federal /How Concepts does it do? It makes decisions about interest rates Reserve the FED effects interest rates. /What is its organization/makeup/structure /Made up of 12 district banks and member banks /President appoints Board of Governors /When was it established? 1913 /Why? It is responsible for issuing and storing money and gives it to member banks when needed
Concepts /FDIC /What is its purpose? Provides insurance for people’s money up to $500, 000. /Why it was needed? To protect the savings of the American people /Continental /What Currency is the historical significance? So many of these dollars were printed that they became worthless /M 1 - coins, currency, checks, checking accounts /M 2 - all M 1 and savings accounts
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Chapter 14 – 2 Visual Page 409
Chapter 14 – 2 Visual Page 395
Chapter 14 – 3 Visual Page 405
Chapter 14 – 3 Visual Page 400
/Are Essay supply and demand curves useful for determining how a change in monetary policy will impact interest rates in the short run? Explain /If the supply of money increases, the interest rate goes down. If the supply o money decreases, the interest rate goes up.
Essay /Using the reserve requirement, the Federal Reserve wants to slow economic growth. How would the FED accomplish its goal? Explain what the effect of this action would have on consumers. /The FED can slow economic growth by raising the reserve requirement. This will make a shortage of money and increase interest rates for consumers.
Essay /Explain why is it important for money to be portable, divisible, durable and in limited supply? What effect, if any, would this have on the economy if these characteristics were not present? Portable: to easily move with money from place to place /Divisible: you can make change from the money /Durable: stays for a long time and you don’t have to keep printing /Limited supply: so the dollar doesn’t lose its value and no inflation happens
/Using Essay the situation given, what would be the impact on consumers if the FED action describe was taken?
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