Chapter 11 - The Monetary System

Question 0

Medium of Exchange

Answer 0

A medium of exchange is an item that buyers give to sellers when they want to purchase goods and services.

Question 1

Money

Answer 1

Money is the set of assets in an economy that people regularly use to buy goods and services from other people.

Question 2

Unit of Account

Answer 2

A unit of account is the yardstick people use to post prices and record debts.

Question 3

Store of Value

Answer 3

A store of value is an item that people can use to transfer purchasing power from the present to the future.

Question 4

Liquidity

Answer 4

Liquidity is the ease with which an asset can be converted into the economy’s medium of exchange.

Question 5

Commodity Money

Answer 5

Commodity money is money that takes the form of a commodity with intrinsic value.

Question 6

Flat Money

Answer 6

Flat money is money without intrinsic value that is used as money because of government decree.

Question 7

Currency

Answer 7

Currency refers to the paper bills and coins in the hands of the public.

Question 8

Demand Deposits

Answer 8

Demand deposits are balances in bank accounts that depositors can access on demand by writing a check.

Question 9

Federal Reserve (Fed)

Answer 9

The Federal Reserve is the central bank of the United States.

Question 10

Central Bank

Answer 10

A central bank is an institution designed to oversee the banking system and regulate the quantity of money in the economy.

Question 11

Money Supply

Answer 11

The money supply is the quantity of money available in the economy.

Question 12

Monetary Policy

Answer 12

Monetary policy is the setting of the money supply by policymakers in the central bank.

Question 13

Reserves

Answer 13

Reserves are deposits that banks have received but have not loaned out.

Question 14

Fractional-Reserve Banking

Answer 14

Fractional-reserve banking is a banking system in which banks hold only a fraction of deposits as reserves.

Question 15

Reserve Ratio

Answer 15

The reserve ratio is the fraction of deposits that banks hold as reserves.

Question 16

Money Multiplier

Answer 16

The money multiplier is the amount of money the banking system generates with each dollar of reserves.

Question 17

Bank Capital

Answer 17

Bank Capital is the resources a bank’s owners have put into the institution.

Question 18

Leverage

Answer 18

Leverage is the use of borrowed money to supplement existing funds for purposes of investment.

Question 19

Leverage Ratio

Answer 19

The leverage ratio is the ratio of assets to bank capital.

Question 20

Capital Requirement

Answer 20

The capital requirement is a government regulation specifying a minimum amount of bank capital.

Question 21

Open-Market Operations

Answer 21

Open-market operations are the purchase and sale of U.S. government bonds by the Fed.

Question 22

Discount Rate

Answer 22

The discount rate is the interest rate on the loans that the Fed makes to banks.

Question 23

Reserve Requirements

Answer 23

Reserve requirements are regulations on the minimum amount of reserves that banks must hold against deposits.

Question 24

Federal Funds Rate

Answer 24

The federal funds rate is the interest rate at which banks make overnight loans to one another.