Chapter 15 Flashcards
What are the four functions of money?
- Medium of exchange
- Unit of accounting
- Store of value
- Standard of deferred payment.
What does the term “unit of accounting” mean?
A measure by which prices are expressed.
What does the term “Standard of deferred payment” mean?
A property of an item that makes it desirable for settling debts that mature in the future.
What is the definition of liquidity?
The degree to which an asset can be acquired or disposed of without much loss in nominal value.
Explain what cost is incurred by holding money as opposed to some other asset.
The cost of holding money, in other words, its opportunity cost, is measured by the alternative interest yield obtainable by holding some other asset.
What is a fiduciary monetary system?
A system in which money is issued by the government in its value is based uniquely on the public’s faith that the currency represents command over goods and services and will be accepted in payment for debts.
What is the money supply?
The total amount of money in circulation.
What are the two basic approaches to measuring money?
- Transactions approach
2. Liquidity approach
Define M1 money.
The money supply, as measured as the total value of currency plus transition deposits plus travel checks not issued by banks.
What is a central bank?
An official institution that serves as a bank for the nation’s government or treasury. Central banks normally regulate commercial banks.
What is financial intermediation?
The process by which financial institutions accept savings from businesses households and governments, and lend that money to other businesses households, or governments.
Banks are financial ______.
Intermediaries.
How many governors sit on the board of the Federal Reserve?
7
There are how many Federal Reserve district banks?
12
What are the FEDs main functions?
- Supply the economy with fiduciary currency.
- Hold depository institutions’ reserves and pay interest on those reserves.
- Act as the government’s fiscal agent
- Supervise deposit institutions
- Conducts monetary policy
- Intervene if necessary in foreign currency markets.
- Act as the lender of last resort.
