Chapter 14: Money, Banking, and the Federal Reserve System

Question 1

Money =

Answer 1

any asset that can easily be used to purchase goods and services

Question 2

Currency in circulation =

Answer 2

chase held by the public

Question 3

Checkable bank deposits

Answer 3

bank accounts that can be accessed by using checks, debit cards, and digital payments

Question 4

money supply =

Answer 4

the total value of financial assets in the economy that are considered money

The narrower definition of money considers only the most liquid assets to be money: currency in circulation and checkable bank deposits.

The broader definition includes the three categories just noted plus other assets that are “almost” checkable, such as savings account deposits that can easily be transferred into a checking account with a phone call or a few taps on a smartphone. Both definitions of the money supply, however, make a distinction between those assets that can easily be used to purchase goods and services and those that can’t.

Question 5

Money plays a crucial role in generating gains from trade because

Answer 5

it makes indirect exchange possible.

Question 6

the problem of finding a double coincidence of wants

Answer 6

In principle, double coincidence of wants would mean that both parties must agree to sell and buy each commodity. Under this system, problems arise through the improbability of the wants, needs, or events that cause or motivate a transaction occurring at the same time and the same place.

Question 8

Money plays three main roles in any modern economy: i