1. Chapter 14 Review
Money and Banking

2. Vocabulary Terms
Bank Holding Company- a firm that owns one or more banks
Legal Reserves- coins and currency that banks hold in their vaults (lockers)
State Bank- banks that received its charter to operate from a state government
Member Bank Reserves- deposit a member bank keeps at the FED
Discount Rate - interest rate the FED charges on loans to member banks

3. Vocabulary Terms
Silver Certificate- paper currency backed by silver dollars
Fiat Money- anything a government decrees to be money
Medium of Exchange- something accepted as payment for goods and services
Federal Reserve Notes- paper currency by the FED
Barter Economy- economy based on trade
Regulation Z- law giving the FED authority to allow people to borrow money

4. Concepts Money Types As an economic good. Determining value Defined:
Types and characteristics:
1.Divisible Transferrable In limited supply Durable
Types
Commodity money: money that can also be used as an economic good (tea, coffee, chocolate, salt)
Fiat money: paper and coins that the government says are money

5. Concepts Easy Money Policy Tight Money Policy What is it?
The FED expands money supply (gives out more money)
Interest rates fall
More money is in the economy
How does it effect the economy?
More spending is happening and the economy improves
Tight Money Policy
The FED contracts money supply (gives out less money
Interest rates increase
Less money in the economy
Less spending is happening and no economic growth

6. Concepts FOMC Federal Reserve
What does it do? It makes decisions about interest rates
Federal Reserve
How the FED effects interest rates.
What is its organization/makeup/structure
Made up of 12 district banks and member banks
President appoints Board of Governors
When was it established? 1913
Why? It is responsible for issuing and storing money and gives it to member banks when needed

7. Concepts FDIC Continental Currency
What is its purpose? Provides insurance for people’s money up to $500,000.
Why it was needed? To protect the savings of the American people
Continental Currency
What is the historical significance? So many of these dollars were printed that they became worthless
M1- coins, currency, checks, checking accounts
M2- all M1 and savings accounts

8. Chapter 14 – 1 Visual
Page 409

9. Chapter 14 – 2 Visual
Page 409

10. Chapter 14 – 2 Visual
Page 395

11. Chapter 14 – 3 Visual
Page 405

12. Chapter 14 – 3 Visual
Page 400

13. Essay
Are supply and demand curves useful for determining how a change in monetary policy will impact interest rates in the short run? Explain
If the supply of money increases, the interest rate goes down. If the supply o money decreases, the interest rate goes up.
Graphs on page 402

14. Essay
Using the reserve requirement, the Federal Reserve wants to slow economic growth. How would the FED accomplish its goal? Explain what the effect of this action would have on consumers.
The FED can slow economic growth by raising the reserve requirement. This will make a shortage of money and increase interest rates for consumers.

15. Essay
Explain why is it important for money to be portable, divisible, durable and in limited supply? What effect, if any, would this have on the economy if these characteristics were not present? Portable: to easily move with money from place to place
Divisible: you can make change from the money
Durable: stays for a long time and you don’t have to keep printing
Limited supply: so the dollar doesn’t lose its value and no inflation happens

16. Essay
Using the situation given, what would be the impact on consumers if the FED action describe was taken?