Chapter 31

Question 1

Functions of money

Answer 1

medium of exchange

unit of account

store of value

Question 2

MEDIUM OF EXCHANGE

Answer 2

any item sellers generally accept and buyers generally use to pay for a good or service

Question 3

UNIT OF ACCOUNT

Answer 3

where prices can be stated and the value of goods and services can be compared

Question 4

STORE OF VALUE

Answer 4

asset set aside for future use

Question 5

LIQUIDITY

Answer 5

ease with which an asset can be converted quickly into cash with little or no loss of purchasing power

Question 6

M1

Answer 6

most narrowly defined money supply

equal to currency in hand of public and checkable deposits of commercial banks and thrift institutions

Question 7

TOKEN MONEY

Answer 7

bills or coins for which the amount printed on the currency bears no relationship to the value of the paper or metal embodied within it

Question 8

NEAR-MONIES

Answer 8

financial assets

most important of which are noncheckable savings accounts, time deposits, and us short term securities and saving bonds

not a medium of exchange but can be converted into money

Question 9

M2

Answer 9

more broadly defined money supply

=m1 plus noncheckable saving accounts, small time deposits, and individual money market mutual fund balances

Question 10

What backs money supply? promises to pay

Answer 10

debt

Question 11

Value of money

Answer 11

acceptability

legal tender

relative scarcity

Question 12

ACCEPTABILITY

Answer 12

medium of exchange, widely accepted in united states

Question 13

LEGAL TENDER

Answer 13

nations official currency

Question 14

RELATIVE SCARCITY

Answer 14

a condition that exists when a particular resource is in short supply in one or more areas

Question 15

Functions of the Federal Reserve

Answer 15

1. issue currency
2. set and hold reserve requirements
3. lending to financial inst. and of last resort
4. check clearing
5. fiscal agent for fed govt
6. supervising banks
7. CONTROLLING MONEY SUPPLY (MOST IMPORTANT!!!)