Econ 102 final exam outline FINAL COPY

Econ 102 final exam outline FINAL COPY - E. 1. The money...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
E. 1. The money supply is determined by the central bank as well as fractional reserve banks. The money supply is the total amount of money in circulation in a countries economy. Measured by total of all physical currency, amount of money in demand (checking accounts), most savings/money market accounts, and certificate of deposit (CD) accounts. M1 (transactions money) = currency held by outside banks + demand deposits + traveler’s checks + other checkable deposits. M2 (broad money) = M1 + savings accounts + money market accounts + other near monies. 2. The fractional reserve banking system receives deposits from customers and makes loans as well as buying securities in order to earn interest with them. 3. ? 4. The central bank, also known in America as the Federal Reserve bank, is concerned with controlling the money supply, while private banks are independent lenders who wish to profit from money deposits. 5. The banks’ assets include: the buildings, holdings of gov’t securities, cash in its vaults, and loans. Liabilities are: its debt. Net worth = Assets – Liabilities. 6. ? 7. The three main tools of the Fed are: open market operations (buying and selling gov’t bonds) , variations in the legal reserve ratio, and variations in the “discount” rate (borrowing rate charged by the Fed when commercial banks want to borrow from it). Decreasing the reserve ratio increases the amount of money in banks. Raise reserve ratio decrease Ms. 8. ? The Fed makes regulatory decisions while the treasury serves to create physical monies. 9. By buying the ten million in bonds, in theory the Fed pushes money out onto the market in hope to increase Ms. Factors determining the ultimate increase in Ms are determined by how those people deposit that money in the banks, the resulting excess of reserves and buying of securities. 10. People hold money because of transactions demand. There is a mismatch between income coming in and expenditures being made and many of our daily transactions require the spending of cash. So we need a cash balance to draw upon. There are also Precautionary and Speculative motives. 11. The demand cure for money is determined by the “price” (the interest rate— e.g. the price of holding money) at a given quantity of money. The higher the interest rate, the lower the demand. The curve slopes down to the right because this is an aggregate demand curve, and some individual demand curves are insensitive to interest changes.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 5

Econ 102 final exam outline FINAL COPY - E. 1. The money...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online