chapter 9

money

anything that is generally accepted as a means of payment

1. exchange

2. measure

3. store 

fill in the blank

the functions of money: 

1. To be medium of _________

2. To provide a _______ of value 

3. To provide a _____ of value

medium

“means” or “agent”

barter

direct exchange of one good for another without a standard form of money passing from hand to hand

measure of value 

allows individuals to know the exact value of a good or a service

store of value

provides financial financial security for the future

1. portability

2. durability

3. homogeneity

4. divisibility

5. constancy

6. intrinsic valuableness

fill in the blank

qualities of money:

1. ________: easily carried about 

2. _________: slow to wear out 

3. ___________: standard, recognizable appearance 

4. _________: available for use in large and small units 

5. _________: stability in value 

6. _______ ___________: worth something in its own right

portability

easily carried about

durability

slow to wear out

homogeneity 

standard, recognizable appearance

divisibility

available for use in large and small units

constancy

stability in value

intrinsic valuableness 

worth something in its own right

pine tree shillings

currency of Massachusetts Bay Co.

john hull

fill in the blank

pine tree shillings were pioneered by captain ______ ______

specie

coined, metallic money

debased

lowering the intrinsic value of coins by mixing in less valuable metals

gresham’s law 

“Bad money drives out good’; people will save stable forms of money and spend less stable forms instead

face value 

the value (dollar amount) that a type of $ has applied to it

inflation 

fill in the blank 

money that does not meet its face value can lead to _______

inflation 

too much money in circulation; value decreases

decreases

fill in the blank

with inflation, value _________

deflation

less money in circulation; value increases

increases

fill in the blank 

with deflation, value __________

legal tender

a type of money that has been accepted as payment in any nation

bank notes

original form of money used in America; represented a certain amount of bullion

bullion 

fill in the blank 

bank notes represented a certain amount of _________

fractional reserve banking 

allows a bank to hold less than 100% of its total deposits

fractional reserve banking

the deposits are invested in the stock market, properties, loans, etc.

fiat money

paper money that is backed by only the government promise; no gold or silver

fiat money 

the form of money used in America today

M1

currency in circulation (most narrowly defined); all deposits for transaction accounts, coins, cash, and traveler’s checks

M2 & M3

AKA Near Monies (almost like money; can be converted to M1 because they are highly liquid)

near monies

fill in the blank

M2 & M3 are also called _____ ________

M2

savings accounts, money market accounts, and timed deposits less than 100k

debit card 

money is immediately withdrawn from a person’s bank account

credit card

not a form of money

credit card

spending the company’s money and paying them back at a later date

1. 750 

2. 550 

fill in the blank 

a credit score of ____ or higher is exceptional; _____ is poor (FICO)

department of the treasury

responsible for creating coinage and paper money in America (Bur. of the Mint / Engraving and Printing)

federal reserve system

privately owned agency that controls the money supply in America

board of governors 

leaders of the Federal Reserve (appointed by the President and confirmed by the Senate)

federal open market (FOMC) 

deals with the buying and selling of government properties and finances

federal reserve banks

controls policies, interest rates, and money supply of banks in each district

12

how many total federal reserve banks are there? (1 for each district)

open market operations 

selling government investment properties to the American people

reduces

fill in the blank

with open market operations, selling ______ money supply

increases

fill in the blank

with open market operations, buying _______ the money supply

fractional reserve banking

Federal Reserve determines the reserve ratio for the bank (the % of deposits they must not loan out — raised to reduce money in circulation)

discount rates 

private banks can borrow money from the Federal Reserve; interest is paid back in each loan — raised to reduce money in circulation

“easy money”

more funds in circulation through ready approval of loans to increase money in circulation

recession

a period during which the economy recedes or declines

Milton Friedman 

ervative economist during Reagan’s Presidency; supporter of the theory of monetarism

monetarism

the variation in the money supply is the main source of economic fluctuations

banks

most common; offer various kinds of savings and checking accounts

credit unions

members can join voluntarily and have voting privileges for making decisions and creating policies in the organizations

finance companies 

make loans directly to consumers

insurance companies

receive a premium paid by the insured in the event of loss or death

pension funds

receive funds from a company’s employees and employers may contribute on behalf of the employee

collateral 

property that a lender will hold until loans are repaid

secured

fill in the blank

_______ loans are backed by collateral

wage garnishment

court order demanding that an employer take a specified amount out of an employee’s wages each paycheck to pay the creditor

down payment 

a large initial cash payment

equity

partial ownership of an item

1. secured

2. cosign

3. authorized

fill in the blank

credit history and credit bureaus:

1. Apply for a _______ credit card 

2. Get someone to _____ on a loan 

3. Become an _________ user on a credit card

midas of the golden touch

what story is an example of the use and abuse of money?

good nor evil

fill in the blank

money in itself is neither ______ nor _____

chapter 7 bankruptcy

most of this person’s debts are forgiven

chapter 13 bankruptcy

the person must work out with the court a payment schedule to repay creditors

fixed-rate mortgage 

interest rate is locked in even if interest rates rise in the future

adjustable rate mortgage (ARM)

interest rate varies annually

closing costs

additional costs to purchasing a home

escrow 

a fund where money is held by a 3rd party to be paid on a person’s behalf