Fed Reserve System Test REVIEW SHEET for Test on Wednesday, April 1!

FEDERAL RESERVE SYSTEM UNIT REVIEW SHEET

The Barter System
Why is a $1 bill less than a $10 bill?
Why can’t you pay for things with pens or notebooks?
Define barter system
Name one advantage of the barter system
Name one disadvantage
What three functions does money satisfy? (medium of exchange, store of value, measure of value)
Name the commodity used in Virginia during the colonial period used in the place of money
Does an increase in the amount of currency in circulation mean there is more money in the economy (no, it means that people prefer to hold their money in cash rather than in checking accounts)

The Federal Reserve System
What is the mission of the Fed?
What is monetary policy?
Define discount rate
Would the Fed lower or increase the discount rate to avoid inflation?
Define reserve requirement
Would the Fed lower or increase the reserve requirement to combat recession?
Define open market operations
Would the Fed buy or sell government securities to prevent inflation?
When would the Fed have an expansionary policy?
When would they have a contractionary policy?

Banks
Who came up with the American banking system as we know it?
Why do we sometimes think banks are government agencies?
How do banks earn profits?
Why can’t banks charge whatever interest rates they want to charge?
Name two things that loan officers consider when deciding to give out a bank loan or not.

Banks Creating Money
What three things are on a banks balance sheet?
What should total assets equal?
Define liabilities
Define assets
What is a demand deposit?
How does a savings deposit differ from a demand deposit?
What three conditions must be in place for a $1000 deposit to lead to $5000 in deposits? (banks lend out excess reserves, customers are will to borrow banks excess, all loans are redeposited in a bank)

Inflation
Define inflation
If I have a lot of money I am better off, if everyone has more money I am also better off. True or false
Why did the price of the candy bar go up in the game?
Name someone who would be hurt by inflation
Describe someone who would be helped by inflation
Would long term or short term decisions be most difficult to make because of inflation?