Ch 10

Question 1

(Financial Section) Market for the production and exchange of goods and services

Answer 1

Real Sector

Question 2

(Financial Sector) Market for the creation and exchange of financial assets
*financial assets include money, stocks, and bonds
*Plays a central role in organizing and coordinating our economy

Answer 2

Financial Sector

Question 3

For every ____ transaction, there is a _________ transaction that mirrors it

Answer 3

real, financial

Question 4

the _________ sector channels savings back into spending as loans

Answer 4

financial

Question 5

______ is ________ from the spending stream from government, households, and corporations

Answer 5

saving, outflows

Question 6

_____ are _______ which are made to government, households, and corporations

Answer 6

loans, inflows

Question 7

(1.) liquid financial asset

Answer 7

money

Question 8

can easily be changed into another asset

Answer 8

liquid

Question 9

(2.) functions to keep economy moving

Answer 9

money

Question 10

(Three functions of money) 1. use money to buy goods; reduces search cost of beneficial trades

Answer 10

Medium of exchange

Question 11

(Three Functions of Money) 2. Allows us to hold value over time so it serves to store wealth

Answer 11

Store of Value

Question 12

(Three Functions of Money) 3. Goods are priced in money so it is a common standard to measure relative worth of goods.

Answer 12

Unit of account

Question 13

(6 characteristics of money) 1. withstand wear and tear

Answer 13

durability

Question 14

(6 characteristics of money) 2. easily carriable

Answer 14

portability

Question 15

(6 characteristics of money) 3. divided into smaller units

Answer 15

divisibility

Question 16

(6 characteristics of money) similar units similar value

Answer 16

uniformity

Question 17

(6 characteristics of money) availability is limited

Answer 17

limited supply

Question 18

(6 characteristics of money) used to exchange for goods and services

Answer 18

Acceptability

Question 19

-financial institution whose function is to accept deposits & lend money

individuals’ deposits in savings and checking accounts like currency and are also considered money

Answer 19

a bank

Question 20

(M1 & M2) M_ consists of currency in the hands of the public plus checking accounts (most liquid)

Answer 20

M1

Question 21

(M1 & M2) M_ is made up of M_ plus savings and money market accounts, times deposits (CDs)

Answer 21

M2, M1

Question 22

(Money vs. Credit )______ ____ balances are assets of a bank in the form of a prearranged loan and the liabilities of the ______ ____ user

Answer 22

Credit Card

Question 23

(banking system) _____ is created in the banking system through the use of deposits to make loans

Answer 23

money

Question 24

(Banking System Step-by-step)
-Person deposits currency in checking account at a bank
-Money is transformed from currency to a bank deposit

Answer 24

Step 1

Question 25

(Banking System Step-by-step) -The bank lends out a fraction/portion of this deposit -The amount of money has expanded *initial deposit + new loan -# of money in the banking system has multiplied because banks loan more than the amount of original reserves on hand

Answer 25

Step 2.

Question 26

*Cash in the vault *deposits at the Fed. *loans made to customers *Government securities (bonds) bought by the banks *Other (the building, computers, land, etc) These are bank ______

Answer 26

assets

Question 27

*Checking deposits of customers (called Demand Deposits or DD) *Savings Accounts and CDs of customers *Loans borrowed by the bank from the Fed or other banks These are Bank ___________

Answer 27

liabilities

Question 28

(Reserves & Required Reserves) Currency & deposits a bank keeps on hand or at the Federal Reserve (US Central Bank) to manage the normal cash inflows and outflows

Answer 28

Reserves

Question 29

(Reserves & Required Reserves) the portion of the total reserves that the Federal Reserve (Fed) requires banks to keep and not lend out

Answer 29

Required Reserves

Question 30

the _______ ratio is the ratio of reserves to deposits a bank keeps as a reserve against cash withdrawals

Answer 30

reserve

Question 31

set by the Federal reserve (rr)

Answer 31

Reserve Ratio

Question 32

rr x total reserves

Answer 32

Required Reserves

Question 33

Banks may have more reserves beyond the amount that is required

Answer 33

Excess reserves

Question 34

______ reserves = required reserves + excess reserves

Answer 34

total

Question 35

to find the total amount of money that will be created, use the _____ __________

Answer 35

money multiplier

Question 36

1/rr

Answer 36

Money Multiplier

Question 37

the measure of the amount of money ultimately created per dollar deposited in the banking system

Answer 37

Money multiplier

Question 38

_____ money created = money multiplier x new deposit

Answer 38

total

Question 39

___ money created = Total money - original deposit

Answer 39

new