Chapter 15

Question 0

Medium of exchange

Answer 0

Any item that sellers will accept as payment

Question 1

Money

Answer 1

Any medium that is universally accepted in an economy both by sellers of goods and services as payment for those goods and services and by creditors as payment for debts

Question 2

Barter

Answer 2

The direct exchange of goods and services for other goods and services without the use of money

Question 3

Unit of accounting

Answer 3

A measure by which prices are expressed; the common denominator of the price system; a central property of money

Question 4

Store of value

Answer 4

The ability to hold value over time; a necessary property of money

Question 5

Standard of deferred payment

Answer 5

A promptly of an item that makes it desirable for use as a means of settling debts maturing in the future; an essential property of money

Question 6

Liquidity

Answer 6

The degree to which an asset can be acquired or disposed of without much danger of any intervening loss in nominal values and with small transaction costs. Money is he most liquid asset

Question 7

Transactions deposits

Answer 7

Check able and debatable account balances in commercial banks and other types of financial institutions, such as credit unions and mutual savings banks; any accounts in financial institutions from which you can easily transmit debit-card and check payments without many restrictions

Question 8

Fiduciary monetary system

Answer 8

A system in which money is issued by the government and it’s value is based uniquely on the public’s faith that the currency represents command over goods and services

Question 9

Money supply

Answer 9

The amount of money in circulation

Question 10

Transactions approach

Answer 10

A method of measuring the money supply by looking at money as a medium of exchange

Question 11

Liquidity approach

Answer 11

A method of measuring the money supply by looking at money as a temporary store of value

Question 12

M1

Answer 12

The money supply, taken as the total value of currency plus transactions deposits plus traveler’s checks not issued by banks

Question 13

Thrift institutions

Answer 13

Financial institutions that receive most of their funds from the savings of the public; they include savings banks, savings and loan associations, and credit unions

Question 14

Traveler’s checks

Answer 14

Financial instruments obtained from a bank or a non-banking organization and signed during purchase that can be used as cash upon a second signature by the purchaser

Question 15

Near moneys

Answer 15

Assets that are almost money. They have a high degree of liquidity and this can be easily converted into money without loss in value. Time deposits are an example.

Question 16

M2

Answer 16

M1 plus (1) savings and small-denomination time deposits at all depository institutions, (2) balances in retail money market mutual funds, and (3) money market deposit accounts (MMDAs)

Question 17

Savings deposits

Answer 17

Interest-earning funds that can be withdrawn at any time without payment of a penalty

Question 18

Depository institutions

Answer 18

Financial institutions that accept deposits from savers and lend funds from those deposits out at interest

Question 19

Money market deposit accounts (MMDAs)

Answer 19

Accounts issued by banks yielding a market rate of interest with a minimum balance requirement and a limit on transactions. They have no minimum maturity

Question 20

Time deposit

Answer 20

A deposit in a financial institution that requires notice of intent to withdraw or must be left for an agreed period. Withdrawal of funds prior to the end of the agreed period may result in a penalty

Question 21

Certificate of deposit (CD)

Answer 21

A time deposit with a fixed maturity date offered by banks and other financial institutions

Question 22

Money market mutual funds

Answer 22

Funds obtained from the public that investment companies hold in common and use to acquire short-maturity credit instruments, such as certificates of deposit and securities sold by the U.S. Government

Question 23

Central bank

Answer 23

A banker’s bank, usually an official institution that also serves as a country’s treasury’s bank. Central banks normally regulate commercial banks

Question 24

Financial intermediation

Answer 24

The process by which financial institutions accept savings from business, households, and governments and lend the savings to other business, households, and governments

Question 25

Financial intermediaries

Answer 25

Institutions that transfer funds between ultimate lenders (savers) and ultimate borrowers

Question 26

Asymmetric information

Answer 26

Information possessed by one party in a financial transaction but not by the other party

Question 27

Adverse selection

Answer 27

The likelihood that individuals who seek to borrow may use the funds that they receive for high-risk projects

Question 28

Moral hazard

Answer 28

The possibility that a borrower might engage in riskier behavior after a loan has been obtained

Question 29

Liabilities

Answer 29

Amounts owed; the legal claims against a business or household by non-owners

Question 30

Assets

Answer 30

Amounts owned; all items to which a business or household holds legal claim

Question 31

Payment intermediaries

Answer 31

Institutions that facilitate transfers of funds between depositors who hold transactions deposits with those institutions

Question 32

Capital controls

Answer 32

Legal restrictions on the ability of a nation’s residents to hold and trade assets denominated in foreign currencies

Question 33

International financial diversification

Answer 33

Financing investment projects in more than one country

Question 34

Work index fund

Answer 34

A portfolio of bonds issued in various nations whose individual yields generally move in offsetting directions, thereby reducing the overall risk of losses

Question 35

Universal banking

Answer 35

An environment in which banks face few or no restrictions on their powers to offer a full range of financial services and to own shares of stock in corporations

Question 36

The Fed

Answer 36

The Federal Reserve System; the central bank of the United States

Question 37

Lender of last resort

Answer 37

The Federal Reserve’s role as an institution that is willing and able to lend to a temporarily illiquid bank that is otherwise in good financial condition to prevent the bank’s illiquid position from leading to a general loss of confidence in that bank or in others