ch.30 Flashcards
(31 cards)
What are the assets considered ‘money’?
Assets that people regularly use to buy goods and services.
What are the functions of money?
- Medium of exchange
- Unit of account
- Store of value
What is the definition of medium of exchange?
An item buyers give to sellers when they want to purchase goods and services.
What is the definition of unit of account?
The yardstick people use to post prices and record debts.
What is the definition of store of value?
An item people can use to transfer purchasing power from the present to the future.
What are the types of money?
- Commodity money
- Fiat money
- Cryptocurrencies
What is commodity money?
Money that takes the form of a commodity with intrinsic value.
What is fiat money?
Money without intrinsic value that is used as money because of government decree.
What is the definition of money stock?
The quantity of money available in the economy.
What assets are part of the money stock?
- Currency
- Demand deposits
What is a central bank?
An institution that oversees the banking system and regulates the quantity of money in the economy.
What is monetary policy?
The setting of the money supply by policymakers in the central bank.
What are reserves in banking?
Deposits that banks have received but have not loaned out.
What does fractional reserve banking mean?
A banking system in which banks hold only a fraction of deposits as reserves.
What is the reserve ratio?
The fraction of deposits that banks hold as reserves.
What are reserve requirements?
The minimum amount of reserves a bank must hold.
In 100-percent-reserve banking, what is the role of banks?
To keep the depositors’ money safe without influencing the money supply.
In fractional-reserve banking, what happens to the money supply?
It increases as banks lend out a portion of deposits.
What is the money multiplier?
The amount of money the banking system generates with each dollar of reserves.
What happens if households hold more of their money as currency?
Banks have fewer reserves, make fewer loans, and money supply falls.
What is a run on banks?
When people withdraw their funds due to suspicion about the bank’s stability.
What is leverage in banking?
The use of borrowed money to supplement existing funds for investment purposes.
What is a capital requirement?
A government regulation that specifies a minimum amount of bank capital.
What are open-market operations?
The purchase and sale of government bonds by a central bank.
