Rotation 2 Chapters 25, 26, 28, 29, 30

Question 1

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

Answer 1

Medium of exchange

Question 2

The yardstick people use to post prices and record debts

Answer 2

Unit of account

Question 3

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

Answer 3

Store of value

Question 4

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

Answer 4

Liquidity

Question 5

Money that takes the form of a commodity with intrinsic value

Answer 5

Commodity money

Question 6

Money without intrinsic value that is used as money because of government decree

Answer 6

Fiat money

Question 7

The paper bills and coins in the hands of the public

Answer 7

Currency

Question 8

Balances in bank accounts that depositors can access on demand by writing a check

Answer 8

Demand deposits

Question 9

The central bank of the United States

Answer 9

Federal Reserve (Fed)

Question 10

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

Answer 10

Central bank

Question 11

The quantity of money available in the economy

Answer 11

Money supply

Question 12

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

Answer 12

Monetary policy

Question 13

Deposits that banks have received but have not loaned out

Answer 13

Reserves

Question 14

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

Answer 14

Fractional-reserve banking

Question 15

The fraction of deposits that banks hold as reserves

Answer 15

Reserve ratio

Question 16

The amount of money the banking system generates with each dollar of reserves

Answer 16

Money multiplier

Question 17

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

Answer 17

Bank capital

Question 18

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

Answer 18

Leverage

Question 19

The ratio of assets to bank capital

Answer 19

Leverage ratio

Question 20

A government regulation specifying a minimum amount of bank capital

Answer 20

Capital requirement

Question 21

The purchase and sale of U.S. government bonds by the Fed

Answer 21

Open-market operations

Question 22

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

Answer 22

Discount rate

Question 23

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

Answer 23

Reserve requirements

Question 24

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

Answer 24

Federal funds rate

Question 25

The set of assets in an economy that people regularly use to buy goods and services from other people

Answer 25

Money

Question 26

A theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate

Answer 26

Quantity theory of money

Question 27

Variable measured in monetary units

Answer 27

Nominal variables

Question 28

Variables measured in physical units

Answer 28

Real variables

Question 29

The theoretical separation of nominal and real variables

Answer 29

Classical dichotomy

Question 30

The proposition that changes in the economy do not affect real variables

Answer 30

Monetary neutrality

Question 31

The rate at which money changes hands

Answer 31

Velocity of money

Question 32

The equation M x V = P x Y, which relates the quantity of money, the velocity of money, and the dollar value of the economy’s output of goods and services

Answer 32

Quantity equation

Question 33

The revenue the government raises by creating money

Answer 33

Inflation tax

Question 34

The one for one adjustment of the nominal interest rate to the inflation rate

Answer 34

Fisher effect

Question 35

The resources wasted when inflation encourages people to reduce their monetary holdings

Answer 35

Shoeleather cost

Question 36

The costs of changing menus

Answer 36

Menu costs