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Economics 101: Understanding Money, the Federal Reserve, and Monetary Policy, Quizzes of Introduction to Macroeconomics

Lamar University (LU)Introduction to Macroeconomics

Definitions and concepts related to money, the role of the federal reserve, and the demand for money. Topics include the difference between money, income, and wealth, the function of money market funds, and the lm relation. Students will gain a foundational understanding of monetary economics.

Typology: Quizzes

2012/2013

Uploaded on 02/17/2013

hummer2654
hummer2654 🇺🇸

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TERM 1
Federal Reserve Bank
DEFINITION 1
The central bank of the United States.Chairman: Ben
Bernanke
TERM 2
Money
DEFINITION 2
Can be used for transactions and pays no interest.Types of
Money:
Currency: Coins and bills
Checkable Deposits: Bank deposits on which you can
write
Currency + Checkable Deposits = M1
TERM 3
Bonds
DEFINITION 3
Pay a positive interest rate(i), cannot be used for
transactions.i = rate of interest
TERM 4
Differences in Money, Income, and Wealth
DEFINITION 4
Money: What can be readily u sed to pay for
transactions.Incom e: What you earn from workin g plus
what you receive in interest a nd dividends. Income is a flow,
meaning expressed in units of time.Wealth: Value of your total
financial assets minus total financial liabilities. Wealth is a
stock variable, a snapshot of a particu lar moment.
TERM 5
Money Market Funds
DEFINITION 5
Money market funds pool together the funds of many people
and purchase bonds.Typically hold government bonds.Pay
interest slightly below the underlying bonds b/c of admin
costs.Considered a type of Mutual Fund.
pf2

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TERM 1

Federal Reserve Bank

DEFINITION 1 The central bank of the United States.Chairman: Ben Bernanke TERM 2

Money

DEFINITION 2 Can be used for transactions and pays no interest.Types of Money: Currency : Coins and bills Checkable Deposits : Bank deposits on which you can write Currency + Checkable Deposits = M TERM 3

Bonds

DEFINITION 3 Pay a positive interest rate (i) , cannot be used for transactions. i = rate of interest TERM 4

Differences in Money, Income, and Wealth

DEFINITION 4 Money: What can be readily used to pay for transactions.Income: What you earn from working plus what you receive in interest and dividends. Income is a flow, meaning expressed in units of time. Wealth: Value of your total financial assets minus total financial liabilities. Wealth is a stock variable, a snapshot of a particular moment. TERM 5

Money Market Funds

DEFINITION 5 Money market funds pool together the funds of many people and purchase bonds.Typically hold government bonds.Pay interest slightly below the underlying bonds b/c of admin costs.Considered a type of Mutual Fund.

TERM 6

Demand for Money (M^d)

DEFINITION 6 (In the economy as a whole)The sum of all of the individual demands for money by an economy.Demand for money increases in proportion to nominal income.M^d = $Y L(i)Y: Nominal IncomeL(i): a function of interest rate (i), interest rate has a negative effect on money demand. TERM 7

LM Relation

DEFINITION 7 The interest rate (i) must be such that, given their income ($Y), people are willing to hold an amount of money equal to the existing money supply (M). "L" in relation is "Liquidity".Financial Market Equilibrium Condition: Money Supply = Money Demand M = $Y L(i)