Chapter 16

Question 1

coincidence of wants

Answer 1

bar tender and economics teacher story

money allows people to not have to barter

Question 2

What are the functions of money?

Answer 2

medium of exchange: item the buyers give to sellers when they want to purchace

Unit of Account: yardstick people use to post prices and record debts

Store of value : item people use to transfer purchasing power from the present to the future

Question 3

coincidence of wants

Answer 3

bar tender and economics teacher story

money allows people to not have to barter because they both want money.

Question 4

The types of money?

Answer 4

commodity money: has intrinsic value; gold coins and ciggarettes in POW camps

Fiatt money: with out intrinsic value used by govt. decree: us dollar

Question 5

What assets are considered part of the money supply?

Answer 5

curency and demand deposits (balances in bank acconuts that depositors can access on demand by writing a check.)

Question 6

m1 (a measure of US Money Supply)

Answer 6

currency, demand deposits, travelors checks and other check-able deposits.

Question 7

m1 (a measure of US Money Supply)

Answer 7

currency, demand deposits, travelors checks and other check-able deposits.

Question 8

M2

Answer 8

everything m1 plus savings nad depostis, money market mutual funds, few minor categories

Question 9

Banks and the Money Supply: An Example: NO BANKING SYSTEM

Answer 9

Public holds the $100 as currency.

Money supply = $100.

Question 10

100% RESERVE BANKING SYSTEM

Answer 10

PUBLIC DEPOSITS $100 IN BANK, BANK HOLDS 100% OF THE DEPOSIT AS RESERVES: MONEY SUPPLY = CURRENCY +DEPOSITS. reserves are listed as $100 and deposits are listed as $100

Question 11

MONEY SUPPLY= currency + deposits

Answer 11

= currency + deposits

Question 12

Fractional reserve banking system

Answer 12

suppose R is 10% . bank loans all BUT 10% of deposit: reserves are $10, loans are $90 and deposits are $100. so they make money by using the money supply formula : currency + deposits = 90+100= 190!

Question 13

how does money grow in a fractional reserve banking system?

Answer 13

creates money, but not wealth. the borrower gets $ in currency and now they have $90 in debt

Question 14

the money multiplier

Answer 14

the amount of money the banking system generates with each dollar of reserves
	The money multiplier equals 1/R. 
	In our example, 
R = 10% 
money multiplier = 1/R = 10
$100 of reserves creates $1000 of money

Question 15

required reserves

Answer 15

m (required reserve ratio) * demand deposit

Question 16

leverage ratio formula

Answer 16

(Reserves+Loans+Securities)/Capital

Question 17

increase in deposits formula

Answer 17

money multiplier X deposits

Question 18

As the reserve ratio decreases, the money multiplier

Answer 18

decreases? because it is 1/reserves

Question 19

STRAIGHT LINE METHOD:

Answer 19

[(Cost - sal. val.) ÷ YEARS]; [Sell. Price – (cost – acc. dep.)]

Question 20

4 divisions of plant assets

Answer 20

land, land improvements, buildings, and equipment.