Chapter 14 Flashcards
what is bartering?
the direct exchange of one good or service for another good or service rather than for money
how does the use of money effect the economy
the use of money simplifies and therefore increases market transactions. money also prevents wasting time that can be devoted to production, thereby promoting economic growth by increasing a nations production possibilities
what is medium of exchange?
the primary function of money to be widely accepted in exchange for goods and services
what is a unit of account?
the function of money to provide a common measurement of the relative value of goods and services
what is the store of value?
the ability of money to hold value over time
T of F Money is a useful mechanism for transforming income in the present into future purchases
True
Why is money the most liquid form of wealth?
Because it can be spent directly in the marketplace
T or F The supply of money must be great enough to meet ordinary transaction needs, but not be so plentiful that it becomes worthless
True
what is commodity money?
anything that serves as money while having market value in other uses
what is fiat money?
money accepted by law and not because of its redeem-ability or intrinsic value
T or F An item’s ability to serve as money does not depend on its own market value or the backing of precious metal
True
Define M1
the narrowest definition of the money supply. It includes currency and checkable deposits.
what is currency?
money, including coins and paper money
what are checkable deposits?
the total of checking account balances in financial institutions convertible to currency “on demand” when a check is written without advance notice
Define M2
the definition of the money supply that equals M1 plus near monies, such as savings deposits and small time deposits of less tan $100000
T or F M2 is more liquid than M1
False
What is the federal reserve system?
The 12 central banks that service banks and other financial institutions within each of the federal reserve districts; popularly called the Fed
describe the board of governors of the federal reserve system?
the seven members appointed by the president and confirmed by the U.S. Senate who serve for one nonreneweable 14 year term. Their responsibility is to supervise and control the money supply and the banking system of the U.S
What is the FOMC(Federal open market committee)?
the federal reserve’s committee that directs the buying and selling of U.s government securities, which are major instruments for the controlling the money supply. the fomc consists of the seven members of the federal reserves board of governors the president of the new York federal reserve bank and the presidents of four other federal reserve district banks
what is the FDIC(federal deposit insurance corporation?
a government agency established in 1933 to insure commercial bank deposits up to a specified limit
what is the monetary control act?
a law, formally titled the depository institutions deregulation and monetary control act of 1980 that gave the federal reserve system greater control over nonmember banks and made all financial institutions more competitive.
T or F Credit cards are money because they represent a short term loan and therefore fail as a store of value
False yes the description is correct but cards are NOT money
what are the three requirements for something to serve as money?
a medium of exchange, a unit of account, and a store of value
what are the basic federal reserve bank functions?
controlling the money supply, clearing checks, supervising and regulating banking, maintain and circulating currency, protecting consumers and maintaining the federal governments checking accounts and gold
