Limited time offer 20% OFF StudySoup Subscription details

MSU - ECON 2113 - Principles of Macroeconomics: Final Exam Study Guide

Created by: Jessica Taflinger Elite Notetaker

> > > > MSU - ECON 2113 - Principles of Macroeconomics: Final Exam Study Guide

MSU - ECON 2113 - Principles of Macroeconomics: Final Exam Study Guide

0 5 3 26 Reviews
This preview shows pages 1 - 3 of a 11 page document. to view the rest of the content
background image Principles of Macroeconomics Final Exam Study Guide 11/7/16 Chapter 14 Function of Money ● Medium of exchange  ○ Usable for buying and selling goods and services ● Unit of account ○ Measuring the relative worth of a wide variety of goods, services, and  resources ● Store of value ○ Transfer purchasing power from present to future  ○ People can choose to hold some or all of their wealth in a wide variety of assets besides money. Money Definition, M1 ● M1 ○ Currency (coins and paper money) in the hands of the public
○ Checkable deposits (all deposits in commercial banks and “thrift” or 
savings institutions on which checks of any size can be drawn) ● Institutions that offer checkable deposits ○ Commercial banks are the primary depositary institution ○ Savings and loan associations  [accept the deposits of households and businesses and then                                                       use the funds to finance housing mortgages]  ○ Mutual savings bank ○ Credit unions (accept deposits from and lend to “member”, who usually  are a group of people who work for the same company) Money Definition, M2 ● M2 ○ Near­Monies are certain highly liquid financial assets that do not  function directly or fully as a medium of excahnge but can be readily converted into 
currency or checkable deposits.
○ Savings deposits including money market deposit accounts(MMDA)  ■ An interest­bearing account containing a variety of  interest­bearing short­term securities.) ○ Small­denominated time deposits ■ Funds from time deposits become available at their  maturity. ○ Money market mutual funds(MMMF) ■ Use the combined funds of individual shareholders buy  interest­bearing short­term credit intruments
background image What “Backs” the money supply? ● Guaranteed by government’s ability to keep value stable  ● Money as debt ○ Paper money and checkable deposits ● Why is money valuable? ○ Acceptability  ■ currency and checkable deposits are money because  people accept them as money. ○ Legal tender  ■ Paper money is a valid and legal menas of payment of  any debt that was contracted in dollars. ○ Relative scarcity ■ Money derives its value from its scarcity relative to its  ( its want­satisfying power.) ● Prices affect purchasing power of money ○ Higher prices lower the value of the dollar ● Hyperinflation renders money unacceptable ○ When the government issued so many pieces of paper currency that the  purchasing power of each of those units of money was almost totally undermined ● Stabilizing money’s purchasing power ○ Intelligent management of money supply­monetary policy Federal Reserve­Banking System ● 12 Federal Reserve Banks ○ Blend private and public control, collectively serve as the nation’s  “central bank” ○ Blend private ownership and public control as Quasi­public banks ○ Banker’s bank perform the same functions for banks and thrifts as those  institutions perform for the public. Federal Reserve Functions ● Issue Currency ○ Federal Reserve Notes, the U.S monetary system ● Set reserve requirements ○ Fraction of checking account valances that bank must maintain as  currency reserves ● Lend money to banks ○ Fed makes short­term loan to banks and thrifts and charges them as  interest rates called discount rate ● Collect checks ● Act as a fiscal agent for U.S. government ○ The government collects huge sums of taxation, spends equally large  amounts, and sells, and redeems bonds ● Supervise banks 
● Control the money supply
background image ○ The fed has ultimate responsibility for regulating the supply of money  and this enable it to influence interest rates. Federal Reserve Independence ● Established by congress as an independent agency
● Protects the Fed from political pressure
● Enables the Fed to take actions to increase interest rates in order to stem inflation as  needed Chapter 15 Fractional Reserve System ● The Goldsmiths ○ Traders deposited their gold to goldsmiths who would store it in vaults  for a fee. The goldsmith would issue a receipt to the depositor. ○ Soon they started paying for goods with the receipts, which served as the  first type of paper money ○ Goldsmiths made loans by issuing receipts ● Characteristics: ○ Banks create money through lending ○ Banks are subject to “panics” ● Balance sheet  ○ A statement of assets and claims on those assets
○ Assets= liabilities + net worth
■ Liabilities: claims of non owners of the bank against  firm’s assets ■ Net worth: claims of the owners of the firm against the  firm’s assets ● Necessary transactions ○ Create a bank ○ Accept deposits
○ Lend excess reserves

This is the end of the preview. Please to view the rest of the content
Join more than 18,000+ college students at Mississippi State University who use StudySoup to get ahead
School: Mississippi State University
Department: Economics
Course: Principles of Macroeconomics
Professor: Heriberto Gonzalez
Term: Fall 2016
Tags: Macroeconomics
Name: Principles of Macroeconomics: Final Exam Study Guide
Description: Finals are coming up! This Study guide covers chapters 14-16 for the final exam!
Uploaded: 12/02/2016
11 Pages 104 Views 83 Unlocks
  • Better Grades Guarantee
  • 24/7 Homework help
  • Notes, Study Guides, Flashcards + More!
Join StudySoup for FREE
Get Full Access to MSU - Ec 2113 - Study Guide
Join with Email
Already have an account? Login here
Log in to StudySoup
Get Full Access to MSU - Ec 2113 - Study Guide

Forgot password? Reset password here

Reset your password

I don't want to reset my password

Need help? Contact support

Need an Account? Is not associated with an account
Sign up
We're here to help

Having trouble accessing your account? Let us help you, contact support at +1(510) 944-1054 or

Got it, thanks!
Password Reset Request Sent An email has been sent to the email address associated to your account. Follow the link in the email to reset your password. If you're having trouble finding our email please check your spam folder
Got it, thanks!
Already have an Account? Is already in use
Log in
Incorrect Password The password used to log in with this account is incorrect
Try Again

Forgot password? Reset it here