chap 16

Question 1

barter

Answer 1

the exchange of one g&s for another

Question 2

double coincidence of wants

Answer 2

the unlikely occurrence that two people each have a good the other wants

Question 3

money

Answer 3

the set of assets that people regularly use to buy from others

Question 4

medium of exchange

Answer 4

money function, an item buyers give to sellers when they want to purchase

Question 5

unit of account

Answer 5

money function, the yardstick people use to post prices and record debts

Question 6

store of value

Answer 6

an item people can use to transfer purchasing power from the present to the future

Question 7

commodity money

Answer 7

takes the form of a commodity with intrinsic value, gold coins, cigarettes, etc

Question 8

flat money

Answer 8

money w/o intrinsic value, used as money bc of gov’t decree

Question 9

money supply/stock

Answer 9

the quantity of money available in the economy

Question 10

currency

Answer 10

the paper bills and coins in the hands of the public (not bank)

Question 11

demand deposits

Answer 11

balances in bank accounts that depositors can access on demand by writing a check

Question 12

M1

Answer 12

currency, demand deposits, traveler’s checks, other checkable deposits

Question 13

M2

Answer 13

everything in M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories.

Question 14

central bank

Answer 14

an institution that oversees the banking system and regulates the money supply

Question 15

monetary policy

Answer 15

the setting of the money supply by policy makers in the central bank

Question 16

federal reserve (fed)

Answer 16

the central bank of the US

Question 17

in a fractional reserve banking system

Answer 17

banks keep a fraction of deposits as reserves and use the rest to make loans

Question 18

reserve requirements

Answer 18

regulations on the min amount of reserves that banks must hold against deposits

Question 19

reserve ratio (R)

Answer 19

fraction of deposits that banks hold as reserves, total reserves as a % of total deposits

Question 20

T-account

Answer 20

a simplified accounting statement that shows a bank’s assets and liabilities

Question 21

money multiplier (1/R)

Answer 21

the amount of money the banking system generates with each dollar of reserves

Question 22

bank capital

Answer 22

the resources a bank obtains by issuing equity to its owners

Question 23

leverage

Answer 23

the use of borrowed funds to supplement existing funds for investment purposes

Question 24

leverage ratio

Answer 24

the ratio of assets to bank capital

Question 25

capital requirement

Answer 25

a gov't regulation that specifies a min amount of capital, intended to ensure banks will be able to pay off depositors and debts

Question 26

money supply = (equation)

Answer 26

money multiplier * bank reserves

Question 27

open market operations (OMOs)

Answer 27

the purchase and sale of US gov't bonds by the fed

Question 28

discount rate

Answer 28

the interest rate on loans the fed makes to banks

Question 29

term auction facility

Answer 29

the fed chooses the quantity of reserves it will loan, then banks bid against each other for these loans

Question 30

reserve requirements

Answer 30

regulations on the min amount of reserves banks must hold against deposits

Question 31

run on banks

Answer 31

when people suspect their banks are in trouble and run to the bank to withdraw their funds

Question 32

federal funds rate

Answer 32

the interest rate on loans that banks borrow from banks