Chapter 12 – Money, Banking, And Money Creation

Question 0

Medium of exchange

Answer 0

Items sellers generally accept and buyers generally used to pay for a good or service

Question 1

Money

Answer 1

Any item that is generally acceptable to sellers in exchange for goods and services

Question 2

Barter

Answer 2

The exchange of one good or service for another good or service

Question 3

Unit of account

Answer 3

A standard unit in which prices can be stated and the value of goods and services can be compared

Question 4

Store of value

Answer 4

An asset set aside for future use

Question 5

Liquidity

Answer 5

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

Question 6

Money supply

Answer 6

Narrowly defined, 1M; more broadly defined, M2, M2+, and M2++

Question 7

M1

Answer 7

Currency (coins and paper money) and demand deposits in chartered banks

Question 8

Currency

Answer 8

Coins and paper money

Question 9

Demand deposit

Answer 9

A deposit in a chartered Bank against which checks may be written

Question 10

Checking account

Answer 10

A demand deposit in a financial institution

Question 11

Token money

Answer 11

coins that have a face value greater than their intrinsic value

Question 12

Paper money

Answer 12

Pieces of paper used as a medium of exchange; in Canada, Bank of Canada notes.

Question 13

Bank of Canada notes

Answer 13

Paper money issued by Canada’s government own central bank, the bank of Canada

Question 14

Checkable deposit

Answer 14

Any deposit in a financial institution against which a check maybe written and which deposit, if it is in the bank, is this part of the M1 money supply

Question 15

Credit union

Answer 15

An association of persons who have a common tie (such as being employees of the same firm or members of the same labor union) that sells shares to (accepts deposits from) its members and makes loans to them

Question 16

Total supply

Answer 16

The supply schedule or the supply curve of all sellers of a good or service; also called market supply

Question 17

Near-monies

Answer 17

Financial assets (such as savings and term deposits in banks and savings institutions) that are not a medium of exchange but can readily be converted into money.

Question 18

Savings deposit

Answer 18

A deposit that is interest-bearing and that can be normally be withdrawn by the depositor at any time

Question 19

M2

Answer 19

A broad definition of money that includes M1 plus personal and business savings deposit that require notice before withdrawal.

Question 20

M2+

Answer 20

A broader definition of money that includes M2 plus deposits at credit unions, caisses populaires, trust companies, other nonbank deposit taking institutions, and money market mutual funds

Question 21

M2++

Answer 21

The broadest definition of the Canadian money supply; consists of M2+ plus canada savings bonds and mom money market mutual funds.

Question 22

Legal tender

Answer 22

Anything that government says must be accepted in payment of a debt

Question 23

Fiat money

Answer 23

Anything that is money because government has decreed it to be money.

Question 24

Chartered bank

Answer 24

A multi branched, privately owned, commercial financial intermediary that has received a charter by act of Parliament

Question 25

Fractional reserve banking system

Answer 25

A banking system with the reserve ratio that is less than 100% of the deposit liabilities of a chartered Bank

Question 26

Bankers Bank

Answer 26

A bank that excepts the deposits of and make loans to try to bank; in Canada, the Bank of Canada.

Question 27

Prime rate

Answer 27

The interest rate banks charge their most creditworthy borrowers.

Question 28

Financial intermediary

Answer 28

Retarded bank or other financial institution that uses the funds deposited with it to make loans

Question 29

Subprime mortgage loans

Answer 29

High interest rate loans by financial institutions to homebuyers with higher than average credit risk

Question 30

Mortgage-backed securities

Answer 30

Bonds backed by mortgage payments

Question 31

Securitization

Answer 31

The process of slicing up and bundling groups of loans, mortgages, corporate bonds, or other financial debts into distinct new securities.

Question 32

Moral hazard

Answer 32

Taking on greater risk on the assumption that one is at least partially insured against losses.

Question 33

Balance sheet

Answer 33

A statement of the assets, liabilities, and net worth of a firm or individual at a certain time

Question 34

Vault cash

Answer 34

The currency a bank has in its vault and cash drawers

Question 35

Till money

Answer 35

Vault cash

Question 36

Desired reserves

Answer 36

The amount of vault cash each chartered Bank chooses to keep on hand for daily transactions, plus it’s deposits at the bank of Canada

Question 37

Desire to reserve ratio

Answer 37

The specified percentage of deposit liabilities a chartered Bank chooses to keep as vault cash

Question 38

Excess reserves

Answer 38

The amount by which a chartered banks actual cash reserves exceed its desired reserves

Question 39

Actual reserves

Answer 39

The funds that the bank has a small cash plus any deposit it may have with the bank of Canada

Question 40

Overnight lending rate

Answer 40

The interest rate banks charge to borrow and lend one day funds to each other

Question 41

Monetary multiplier

Answer 41

The multiple of excess cash reserves but which the banking system can expand demand deposits and thus the money supply by making new loans