Chapter 13 Flashcards
First National Trust has assets of $900,000 and liabilities of $600,000. First National Trust’s owners’ equity is
$300,000
Money is an imperfect store of value because of
inflation
The president of which of the following district banks of the Federal Reserve System is always on the FOMC?
New York
Suppose the required reserve ratio is 10%. A $10 million deposit allows commercial banks to create a maximum total of ________ in deposits.
$100 million
Because banks have been required to keep 10 percent of deposits exceeding $103.6 million as reserves in 2015, one would expect that on the basis of the formula the money multiplier is
10
The required reserve ratio is 15%. The money multiplier is
6.67.
In a barter economy, the exchange of goods trade requires a double coincidence of wants. (T/F)
true
If the total assets of the bank exceeds the banks total liabilities, then
owner’s equity is positive.
money
any items regularly used in economic transactions or exchange and accepted by buyers and sellers
medium of exchange
any item that buyers give to sellers when they purchase goods and services
barter
exchange of one good / service for another
double coincidence of wants
the problem in a system of barter that one person may not have what the other desries
unit of account
a standard unit in which prices can be stated and the value of goods and services compared
store of value
the property of money that holds money preserves until it is used in an exchange
commodity money
a monetary system in which the actual money is a commodity, such as gold or silver
gold standard
a monetary system in which gold backs up paper money
fiat money
a monetary system in which money has no intrinsic value but is backed by the gov’t
M1
the sum of currency in the hands of the public, demand deposits, other checkable deposits, and traveler’s checks
M2
M1 plus other assets, including deposits in savings and loans accounts and money market mutual funds
balance sheet
an account statement for a bank that shows the sources of its funds (liabilities) as well as the uses of its funds (assets)
liabilities
the sources of funds for a bank, including deposits and owners’ equity
assets
the uses of the funds of a bank, including loans and reserves
owners’ equity
the funds provided to a bank by its owners
reserves
the portion of banks’ deposits set aside in either vault cash or as deposits at the Federal Reserve
required reserves
the specific fraction of their deposits that banks are required by law to hold as reserves
excess reserves
any additional reserves that a bank holds above required reserves
reserve ratio
the ratio of reserves to deposits
money multiplier
ratio of increase in total checking account deposits to an initial cash deposit – which is just 1/(reserve ratio)
central bank
a banker’s bank: an official bank that controls the supply of money in an economy
lender of last resort
a central bank is the lender of last resort, the last place, all others having failed, from which banks in emergency situations can obtain loans
monetary policy
the range of actions taken by the federal reserve to influence the level of GDP or inflation
federal reserve bank
one of the 12 regional banks that are an official part of the federal reserve system
board of governors
7 person governing body of the federal reserve system in Washington DC
FOMC
Federal open market committee; the group that decides on monetary policy: it consists of 7 members of the Board of Governors + 5 of the 12 regional bank presidents on a rotating basis
what are the three key properties of money?
it’s a medium of exchange, a unit of account, and a store of value
what’s the difference between demand deposits and the “other checkable deposits” in M1?
demand deposits don’t pay interest; checkable deposits do. But that distinction is not as pronounced as it used to be
the total increase in checking account balance throughout all banks is equal to
initial cash deposit / reserve ratio
