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Macro Test 2 - Ch 16 Monetary System Basics of Money-3...

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Ch. 16 Monetary System Basics of Money -3 Primary Functions of Money 1. Medium of Exchange 2. Store of Value 3. Unit of Account Liquidity- Ease of an asset to be converted into a medium of exchange Types of Money M1-Currency, Checking Accounts, Travelers Checks, Other Checkable Deposits M2- Everything in M1, Savings Accounts, Small CDs(less than 100K), Money Market Mutual Funds FOMC (Federal Open Market Committee) - Make decisions on Monetary Policy NY Fed- Executes Open Market Purchases/ Sales 12 Federal Reserve Banks- Each with its own President 7 Board of Govenors+ 5 Bank Presidents ( 4 Rotating, NY Fed permanent) Federal Funds Rate Target-Overnight interbank lending rate 3 Tools: Open Market transactions: Buy Bonds to Lower Rate, increase money supply Sell Bonds to Increase rate, decrease money supply Federal reserve requirements: Fractional banking requirement Federal Discount Rate: Rate which fed charges banks to borrow money Fractional Banking- Keep only required reserve ratio on hand and lend out the rest
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