Macroeconomics Ch. 16 Definitions

Question 1

Medium Exchange

Answer 1

An item that buyers give to sellers when they want to purchase goods and services.

Question 2

Unit of Account

Answer 2

The yardstick people use to post prices and record debts.

Question 3

Store of Value

Answer 3

An item that people can use to transfer purchasing power from the present to the future.

Question 4

Liquidity

Answer 4

The ease with which an asset can be converted into the economy’s medium of exchange.

Question 5

Commodity Money

Answer 5

Money that takes the form of a commodity with intrinsic value (i.e. gold).

Question 6

Fiat Money

Answer 6

Money without intrinsic value that is used as money by government decree. (i.e. Coins and Bills).

Question 7

M1

Answer 7

Currency, Demand deposits, Traveler’s checks, Other checkable deposits.

Question 8

M2

Answer 8

Savings deposits, Small time deposits, Money market mutual funds, A few minor categories, M1 itself.

Question 9

Federal Reserve

Answer 9

Central bank of the United States

Question 10

Central bank

Answer 10

An institution designed to oversee the banking system and regulate the quantity of money in the economy.

Question 11

Money Supply

Answer 11

The quantity of money available in the economy.

Question 12

Monetary Policy

Answer 12

The setting of the money supply by policymakers in the central bank.

Question 13

Reserves

Answer 13

Deposits that banks have received but have not loaned out.

Question 14

T-account

Answer 14

Simplified accounting statement showing changes in a bank’s assets and liabilities.

Question 15

Fractional-reserve banking

Answer 15

A banking system in which banks can only hold a fraction of deposits as reserves.

Question 16

Reserve Ratio

Answer 16

The fraction of deposits that banks hold as reserves.

Question 17

Money multiplier

Answer 17

The amount of money the banking system generates which each dollar of reserves.

Question 18

Bank capital

Answer 18

the resources a bank’s owners have put into the institution.

Question 19

Leverage

Answer 19

The use of borrowed money to supplement existing funds for purposes of investment.

Question 20

Leverage Ratio

Answer 20

The ratio of assets to bank capital.

Question 21

Capital Requirement

Answer 21

A government regulation specifying a minimum amount of bank capital.

Question 22

Open-market operations

Answer 22

The purchase and sale of US government bonds by the Fed.

Question 23

Discount Rate

Answer 23

the interest rate on the loans that the Fed makes to banks.

Question 24

Reserve Requirements

Answer 24

Regulations on the minimum amount of reserves that banks must hold against deposits.

Question 25

Federal funds rate

Answer 25

The interest rate at which banks make overnight loans to one another.