Chapter 9

Question 1

anything that is accepted as means of payment

Answer 1

money

Question 2

most economists agree that money has three principle purposes (functions)

Answer 2

1. medium of exchange
2. provide measure of value
3. provide a store of value

Question 3

the direct exchange of one good for another good without a standard form of money passing from hand to hand

Answer 3

barter

Question 4

enables us to measure the value or cost of a particular good against the values of other goods

Answer 4

money

Question 5

six characteristics that should be found in money

Answer 5

1. portability (easily carried about)
2. durability (slow to wear out)
3. homogeneity (standard, recognizable appearance)
4. divisibility (available for use in both small and large units)
5. constancy (stability in value)
6. intrinsic valuableness (worth something in its own right, aside from being recognized as money)

Question 6

T/F: many forms of money that have been used throughout history of the world have possessed all six characteristics of money

Answer 6

False

few forms of money

Question 7

advantage of bartering

Answer 7

buyers need not have a money system

need not use cash which they wish to preserve or other purposes

Question 8

coined, metallic money

Answer 8

specie

Question 9

when people cannot trust the value of a form of money, they will save for themselves forms of money that seem more stable and valuable and will spend forms of money that seem less valuable

Answer 9

Grasham’s Law

Question 10

the asserted value of something

Answer 10

face value

Question 11

when the level of prices in the market rises because too much money is in circulation

Answer 11

inflation

Question 12

if prices decrease because money seems more valuable and stable

Answer 12

deflation

Question 13

term for when government deliberately lowers quality and value of coins

Answer 13

debased

Question 14

any form of money that has been declared a valid means of payment

Answer 14

legal tinder

Question 15

gold, silver, platinum usually found in the form of bars, ingots, or plats

Answer 15

bullion

Question 16

a system which allows banks to hold less than 100 percent of deposits in reserve

Answer 16

fractional reserve banking

Question 17

legal tender that is backed by nothing but a government’s money

Answer 17

fiat money

Question 18

the three categories that economists break up our nation’s money supply

Answer 18

M1
M2
M3

Question 19

the category most often referred to

most narrowly defined

Answer 19

M1

Question 20

checks________ money

Answer 20

ARE NOT

Question 21

assets that can easily be converted into M1 because they are highly liquid

Answer 21

near-monies

Question 22

the two categories of money that are often called near-monies

Answer 22

M2
M3

Question 23

category that consists of M1 plus noncheckable savings deposits, money market mutual funds an similar deposits and time deposits less than $100,000

Answer 23

M2

Question 24

time deposits worth over $100,000 are included in the category

Answer 24

M3

Question 25

established during President Washington's administration is the source of part of the American money supply

Answer 25

United States Department of the Treasury

Question 26

the majority of America's money supply is under the control of a central banking network called the

Answer 26

Federal Reserve System

Question 27

an independent agency that does not answer directly to the citizens of the United States

Answer 27

Federal Agency

Question 28

three main components that make up the core of the Federal Reserve System

Answer 28

Board of Governors Federal Open Market Committee Federal Reserve Banks

Question 29

members of the Federal Reserve System's __________________ are appointed by the President and confirmed by the US Senate

Answer 29

Board of Governors

Question 30

the Board of Governors' duty it to

Answer 30

operate America's banking system

Question 31

component of the Federal Reserve System that makes decision regarding the buying and selling of government securities (Treasury notes, bills, and bonds)

Answer 31

Federal Open Market Committee

Question 32

component of the Federal Reserve System that influences the policies of the private commercial banks with which you are familiar

Answer 32

Federal Reserve Banks

Question 33

the chief aim of the Federal Reserve System is to

Answer 33

1. form America's monetary policy 2. control the money supply

Question 34

three main tools that enable the Federal Reserve System to increase or decrease the amount of money in circulation

Answer 34

open market operations reserve ratios discount rates

Question 35

a period, usually six months or longer, during which the economy declines

Answer 35

recession

Question 36

implies that more funds are in circulation through the ready approval on loan applications

Answer 36

easy money

Question 37

a conservative monetarist

Answer 37

Milton Friedman

Question 38

the theory that the variation in the money supply is the main source of economic fluctuations

Answer 38

monetarism

Question 39

Friedman became associated with the theory of

Answer 39

monetarism

Question 40

the root of all evil

Answer 40

love of money

Question 41

______________ in itself is neither good nor evil

Answer 41

money