Chapter 26

Question 1

define medium of exchange

Answer 1

anything that is generally accepted in return for goods and services sold

Question 2

define barter

Answer 2

a system in which goods and services are traded directly for other goods and services

Question 3

what is Gresham’s law?

Answer 3

theory that “bad” or debased money drives “good” or undebased money out of circulation

Question 4

define bank note

Answer 4

paper money used by commercial banks

Question 5

define gold standard

Answer 5

currency standard whereby a country’s currency is convertible into gold at a fixed rate of exchange

Question 6

define fiat money

Answer 6

paper money or coinage that is neither backed by nor convertible into anything else but is decreed by the government to be legal tender

Question 7

define deposit money

Answer 7

money held by the public in the form of deposits with commercial banks

Question 8

define central bank

Answer 8

bank that acts as banker to commercial banking system and often to the government as well. usually a government-owned institution that is the sole money-issuing authority

Question 9

define clearing house

Answer 9

an institution in which interbank indebtedness, arising from the transfer of cheques between banks, is computed and offset and net amounts owing are calculated

Question 10

The reserves needed to ensure that depositors ca withdraw their deposits whenever they like will normally be (large/small)

Answer 10

small