Economics Test Ch. 10-11

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Legal tender
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Any medium of exchange that the government requires all creditors to accept
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Double coincidence of wants
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Both parties involved in the trade wanting what the other has to offer
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Three functions of money
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1. means of payment 2. Measure of value 3. Means of storing purchasing power
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Inflation
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A form of \"economic spoilage\" to which paper money is subject; it can ruin a currencies purchasing power
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Yap
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Ex. Nations currency consisted of large stone wheels some as large as 12 feet in diameter
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Four desirable characteristics of money
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1. convenience & portability 2. Divisibility 3. Durability 4. Stability
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Three kinds of money
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1. Commodity money 2. Representative money 3. Fiat money
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Full-bodied coin
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A coins worth is equal to its face value
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Token coin
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A coins worth is less then it's face value
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Fiat money
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Money used in America
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M-1
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Represents money Americans have available for immediate spending (I.e. currency and coin)
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L
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Includes M1 M2 M3 and other assets that may be used as investment (this is the broadest measure of the money supply information)
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three entities that are creators of money
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1. U.S. Treasury 2. Commercial banks 3. Federal Reserve banking system
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U.S. treasury
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Mints and sells coins to Federal Reserve Banks
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Federal Reserve banking system
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Est. 1913: created vast majority of new money, the Central Bank of the US
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Board of governors
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That's the required reserve ratio, supervises and regulate commercial banks, supervises the 12 Federal Reserve district banks, and administers financial consumer protection laws 7+ members
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Federal Open Market Committee
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Affects the money supply by buying and selling government securities such as treasury bills, treasury notes, and treasury bonds
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6 services the fed. Res. bank. Sys. exists to furnish
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1. Providing a uniform and elastic currency 2. Regulating member banks 3. Clearing checks 4. Acting as fiscal agents 5. Serving as the banker's Bank 6. Creating money
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Elastic currency
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Money supply that can be expanded as the economy grows
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Fiscal agent
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Aka the government's bank
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Money multiplayer
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Represents the number of times a deposit may be multiplied
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Discount rate
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The interest rate the Fed charges on loans to the bank
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Reserve requirements
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A specific percentage of deposits that must be kept on hand
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Open market operations
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Using___ Controls the amount of money in circulation by the purchase or disbursal of gov. securities (this is a function the Fed uses most frequently and changing the money supply)
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