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Naked Economics Chapter 15

1380 Words6 Pages

Benjamin O’Brien
Intro To Bus
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Chapter 15:
Money and the Finical System

• Finance-The study of money—how it’s made, how it’s lost and how it’s managed
• Money- anything that is generally accepted in exchange for goods and services. Many times, relatively scarce objects were used as money bc that limits the money supply for that society. As societies advance and grow, they usually develop paper money, with predetermined values that stand in for the objects that previously were used as money.
• Fiat money, paper money that does not have a backing in gold or another precious object, is a relatively new concept.
• Functions of money- medium of exchange, measure of value, store of value
• Medium of exchange o Accepted …show more content…

has a modified capitalist system. This means that the federal government engages in regulating the economy in limited ways. The Fed’s monetary policies are one of the ways in which the government ensures that the U.S. economic system remains somewhat in balance
• 4 main monetary policy tools
• open market operations
• reserve requirements
• discount rate
• credit controls
• open market operations--main monetary policy tool o Decisions to buy or sell U.S. Treasury bills in the open market
 Buying securities increases money in supply and vice versa
• reserve requirements--main monetary policy tool o Percentage of deposits a bank must hold in reserve
 Has a strong effect on the economy and not used often
• discount rate--main monetary policy tools o Rate of interest the Fed charges to loan money to banking institutions
 Lowering discount rate encourages borrowing and expands money supply and vice versa
• credit controls--main monetary policy tool-authority to test and enforce credit rules
• four main monetary policy tools again
• the Fed must know how much is in circulation–complex . how the Fed increases or decreases the money supply in circulation:

 1.Buy or sell money on the open market
 2.Requiring a percentage of bank deposits to be held in reserve
 3.Setting the interest rates the Fed charges to loan money to banking

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