FlashcardsChapter17

Question 1

Term

Answer 1

Description

Question 2

Currency

Answer 2

the paper bills and coins used to buy goods and services. (480)

Question 3

Money

Answer 3

any generally accepted means of payment. (480)

Question 4

Medium of exchange

Answer 4

what people trade for goods and services. (481)

Question 5

Barter

Answer 5

the trade of a good or service in the absence of a commonly accepted medium of exchange. (481)

Question 6

Double coincidence of wants

Answer 6

condition occurring when each party in an exchange transaction happens to have what the other party desires. (481)

Question 7

Commodity money

Answer 7

the use of an actual good for money. (481)

Question 8

Commodity‐backed money

Answer 8

money that can be exchanged for a commodity at a fixed rate. (481)

Question 9

Fiat money

Answer 9

money with no value except as the medium of exchange; there is no inherent or intrinsic value. (482)

Question 10

Unit of account

Answer 10

the measure in which prices are quoted. (482)

Question 11

Store of value

Answer 11

a means for holding wealth. (483)

Question 12

Commercial banks

Answer 12

banks where most people have their checking and savings accounts and where most households would go to get a loan. (484)

Question 13

Investment banks

Answer 13

banks that most commonly help firms raise money to invest. (484)

Question 14

Central bank

Answer 14

the bank for the banks; roles include managing the money supply, providing loans to struggling banks, and regulating the banking system. (485)

Question 15

Checkable deposits

Answer 15

deposits in bank accounts from which depositors may make withdrawals by writing checks. (486)

Question 16

M1

Answer 16

the money supply measure composed of currency, checkable deposits, and traveler’s checks. (486)

Question 17

Liquidity

Answer 17

how easily something can be spent. (486)

Question 18

M2

Answer 18

the money supply measure that includes everything in M1 plus savings deposits, money market mutual funds, and small‐denomination time deposits (CDs). (486)

Question 19

Financial intermediaries

Answer 19

firms that act as go‐betweens for savers and investors by taking in deposits and extending loans. (489)

Question 20

Balance sheet

Answer 20

an accounting statement that summarizes a firm’s key financial information. (490)

Question 21

T account

Answer 21

a basic balance sheet where the assets on one side equal the liabilities on the other. (490)

Question 22

Assets

Answer 22

the items a firm owns. (490)

Question 23

Liabilities

Answer 23

the financial obligations a firm owes to others. (490)

Question 24

Reserves

Answer 24

the portion of bank deposits that are set aside and not loaned out. (491)

Question 25

Fractional reserve banking

Answer 25

a system in which banks hold only a fraction of deposits on reserve. (491)

Question 26

Bank run

Answer 26

event occurring when many depositors attempt to withdraw their funds from a bank at the same time. (491)

Question 27

Required reserve ratio

Answer 27

the portion of deposits that banks are required to keep on reserve. (492)

Question 28

Required reserves

Answer 28

the portion of deposits that a bank must have readily available for withdrawal as determined by the reserve ratio. (492)

Question 29

Excess reserves

Answer 29

any bank reserves held in excess of those required. (492)

Question 30

Moral hazard

Answer 30

the situation in which a party that is protected from risk behaves differently from the way it would behave if it were fully exposed to the risk. (494)

Question 31

Simple money multiplier

Answer 31

the rate at which banks multiply money when all currency is deposited into banks and they hold no excess reserves. (497)