CH 15

Question 1

Money

Answer 1

Anything that serves as a medium of exchange

Question 2

Medium of exchange

Answer 2

Anything that is widely accepted as a means of payment

Question 3

Barter

Answer 3

When goods are exchanged directly for other goods

Question 4

Unit of account

Answer 4

A consistent means of measuring the value of things

Question 5

Store of value

Answer 5

An item that holds value over time

Question 6

Commodity money

Answer 6

Money that has value apart from its use as money

Question 7

Fiat money

Answer 7

Money that some authority, generally a government, has ordered to be accepted as a medium of exchange

Question 8

Currency

Answer 8

Paper money and coins

Question 9

Checkable deposits

Answer 9

Balances in checking accounts

Question 10

Check

Answer 10

A written order to bank to transfer ownership of a checkable deposit

Question 11

Money supply

Answer 11

The total quantity of money in the economy at any one time

Question 12

Liquidity

Answer 12

The ease with which an asset can be converted into currency

Question 13

M1

Answer 13

The narrowest of the Fed’s money supply definitions that includes currency in circulation, checks le deposits, and traveler’s checks

Question 14

M2

Answer 14

A broader measure of the money supply than M1 that includes M1 and other deposits

Question 15

Financial intermediary

Answer 15

An institution that amassed funds from one group and makes them available to another

Question 16

Bank

Answer 16

A financial intermediary that accepts deposits, makes loans, and offers checking accounts

Question 17

Balance sheet

Answer 17

A financial statement showing assets, liabilities, and net worth

Question 18

Assets

Answer 18

Anything of value

Question 19

Liabilities

Answer 19

Obligations to other parties

Question 20

Net worth

Answer 20

Assets less liabilities

Question 21

Reserves

Answer 21

Bank assets held as cash in vaults and in deposits with the Federal Reserve

Question 22

Fractional reserve banking system

Answer 22

System in which banks hold reserves whose value is less than the sum of claims outstanding on those reserves

Question 23

Required reserves

Answer 23

The quantity of reserves banks are required to hold

Question 24

Required reserve ratio

Answer 24

The ratio reserves to checkable deposits a bank must maintain

Question 25

Excess reserves

Answer 25

Reserved in excess of the required level

Question 26

Loaned up

Answer 26

When a banks excess reserves equal zero

Question 27

Deposit multiplier

Answer 27

The ratio of the maximum possible change in checkable deposits to the change in reserves

Question 28

Central bank

Answer 28

A bank that acts as a banker to the central government, acts as a banker to banks, acts as a regulator of banks, conducts monetary policy, and supports the stability of the financial system

Question 29

Discount rate

Answer 29

The interest rate charged by the Fed when it lends reserves to banks

Question 30

Federal funds market

Answer 30

A market in which banks lend reserves to one another

Question 31

Federal funds rate

Answer 31

The interest rate charged when one bank lends reserves to another

Question 32

Bond

Answer 32

A promise by the issuer of the bond to pay the owner of the bond a payment or a series of payments on a specific date or dates

Question 33

Open-market operations

Answer 33

The buying and selling of federal government bonds by the Fed