CHAP 20.docx - Money Financial Institutions and the Federal Reserve WHY MONEY IS IMPORTANT The Federal Reserve(the Fed in charge of money in the United

CHAP 20.docx - Money Financial Institutions and the Federal...

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Money, Financial Institutions, and the Federal ReserveWHY MONEY IS IMPORTANTThe Federal Reserve (the Fed) in charge of money in the United StatesMoney: anything people generally accept as payment for goods and servicesBarter: direct trading of goods or services for other goods or services5 standards for a useful form of money:PortabilityDivisibilityStabilityDurabilityUniquenessMoney supplythe amount of money the Federal Reserve makes available for people to buy goods and servicesQE 1/ QE2: Quantitative easing one and two = Fed was creating more money (to move the economy)US Money Supply: M-1, M-2, M-3M=money.M-1 includes coins and paper bills, available by writing checks, held in traveler’s checksM-2 everything in M-1 + money in saving accounts, money market accs, mutual funds, … (take more time to obtain than coins and bills) MOST COMMONM-3: M-2 + big depositsSize of the money supply also affects employmentand economic growthor declineGlobal exchange of money

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