chapter 10 Flashcards
anything that is used to determine value during the exchange of goods and services
medium of exchange
the direct exchange of one set of goods or services for another
barter
a means for comparing the values of goods and services
unit of account
something that keeps its value if it is stored rather than spent
store of value
coins and paper bills used as money
currency
objects that havew value iin and of themselves and that are also used as money
commodity money
objects that have value because the holder can exchange them for something else of value
representative money
coined money, usually gold or silver, used to back paper money
specie
objects that have value because a government has decreed that they are an acceptable means to pay debts
fiat money
an institution for receiving, keeping, and lending money
bank
a bank chartered by the federal government
national bank
a widespread panic in which many people try to redeem their paper money at the same time
bank run
a paper currency issued during the civil war
greenback
a monetary system in which paper money and coins had the value of certain amounts of gold
gold standard
a bank that can lend to other banks in time of need
central bank
a bank that belongs to the federal reserve system
member bank
the seizure of property from borrowers who are unable to repay their loans
foreclosure
all the money available in the United States economy
money supply
the ability to be used as, or directly converted into, cash
liquidly
money in a checking account that can be paid out “on demand” or at any time
demand deposit
a funs that pools money from small savers to purchase short-term government and corporate securities
money market mutual fund
a banksinf system that keeps only a fraction of its funds on hand and lends out the remainder
fractional reserve banking
failing to pay back a loan
default
a specific type of loan that is used to buy real estate
mortgage
a card entitling its owner to buy goods and services based on the owners promise to pay for those goods and services
credit card
the price paid for the use of borrowed money
interest
the mount of borrowed money
principal
a card used to withdraw money from a bank account
debit card
a person or institution to whom money is owed
creditor
list and define the three uses of money
- medium of exchange - used to determine value
- unit of account - comparing values
- store of value - keeps it value
list and briefly explain the six characteristics of money that economist use to judge how well an item serves as currency
- durability - withstand physical wear
- portability - take with you
- divisibility - divide to be smaller
- uniformity - two must be the same
- limited supply - rare in supply
- acceptability - be able to access
list the three types of money and explain the source of value of each
commodity money - objects that have value
representative money - makes objects that have value because of holder
fiat money - government decreed money
what are the two main categories of money supply and how do they differ from each other
M1 - consist of assets that have liquidity
M2 - same but cannot be used as cash directly
What is the advantage of fractional reserve banking and what is the risk of fractional reserve banking?
the advantage to the bank is that it enables the bank to make more profit form the interest it charges on loans. the advantage to borrowers ant the economy on general is that it stimulates growth in the economy, thus creating wealth and new jobs. the disadvantage is that of diminished safety to the bank and economy; the smaller the fraction that the bank keeps on hand the greater the risk of the bank if borrowers default on their loans, and to the economy if defaults cause a general panic, a run on the banks.
anything that serves as a medium of exchange, a unit of account, and a store of value
money
