Economics (Fach) / The monetary system (Lektion)
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The monetary system
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- Bartering is the exchange of one good for another.
- Money has three functions in the economy 1 Medium of exchange 2 Unit of account 3 Store of value
- Medium of Exchange A medium of exchange is an item that buyers give to sellers when they want to purchase goods and services.
- Commodity money Examples: Gold, silver, cigarettes.
- Fiat money Examples: Coins, currency, current account deposits.
- A central bank is an institution designed to oversee the banking system and regulate the quantity of money in the economy.
- Monetary policy is the set of actions taken by the central bank in order to affect the money supply.
- Reserves are deposits that banks have received but have not loaned out.
- fractional-reserve banking system, banks hold a fraction of the money deposited as reserves and lend out the rest.
- reserve ratio is the fraction of deposits that banks hold as reserves.
- This T-Account shows a bank that... accepts deposits, • keeps a portion as reserves, • and lends out the rest. • It assumes a reserve ratio of 10%.
- When a bank makes a loan from its reserves the money supply increases.
- money multiplier is the amount of money the banking system generates with each unit of reserves.
- Open-Market Operations A central bank conducts open-market operations when it buys government bonds from, or sells government bonds to the public: o When the central bank buys government bonds, the money supply increases. o The money supply decreases when the central bank sells government bonds.