Chapter 14

Question 1

what is bartering?

Answer 1

the direct exchange of one good or service for another good or service rather than for money

Question 2

how does the use of money effect the economy

Answer 2

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

Question 3

what is medium of exchange?

Answer 3

the primary function of money to be widely accepted in exchange for goods and services

Question 4

what is a unit of account?

Answer 4

the function of money to provide a common measurement of the relative value of goods and services

Question 5

what is the store of value?

Answer 5

the ability of money to hold value over time

Question 6

T of F Money is a useful mechanism for transforming income in the present into future purchases

Answer 6

True

Question 7

Why is money the most liquid form of wealth?

Answer 7

Because it can be spent directly in the marketplace

Question 8

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

Answer 8

True

Question 9

what is commodity money?

Answer 9

anything that serves as money while having market value in other uses

Question 10

what is fiat money?

Answer 10

money accepted by law and not because of its redeem-ability or intrinsic value

Question 11

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

Answer 11

True

Question 12

Define M1

Answer 12

the narrowest definition of the money supply. It includes currency and checkable deposits.

Question 13

what is currency?

Answer 13

money, including coins and paper money

Question 14

what are checkable deposits?

Answer 14

the total of checking account balances in financial institutions convertible to currency “on demand” when a check is written without advance notice

Question 15

Define M2

Answer 15

the definition of the money supply that equals M1 plus near monies, such as savings deposits and small time deposits of less tan $100000

Question 16

T or F M2 is more liquid than M1

Answer 16

False

Question 17

What is the federal reserve system?

Answer 17

The 12 central banks that service banks and other financial institutions within each of the federal reserve districts; popularly called the Fed

Question 18

describe the board of governors of the federal reserve system?

Answer 18

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

Question 19

What is the FOMC(Federal open market committee)?

Answer 19

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

Question 20

what is the FDIC(federal deposit insurance corporation?

Answer 20

a government agency established in 1933 to insure commercial bank deposits up to a specified limit

Question 21

what is the monetary control act?

Answer 21

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.

Question 22

T or F Credit cards are money because they represent a short term loan and therefore fail as a store of value

Answer 22

False yes the description is correct but cards are NOT money

Question 23

what are the three requirements for something to serve as money?

Answer 23

a medium of exchange, a unit of account, and a store of value

Question 24

what are the basic federal reserve bank functions?

Answer 24

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

Question 25

what is the monetary control act of 1980?

Answer 25

revolutionized U.S. banking by expanding the authority of the federal reserve system to all financial institutions. In addition, this law increased competition by blurring the distinctions between commercial banks, thrift institutions, and even nonfinancial institutions