Chapter 13 - Money and the Banking System

Fiat

________ money: A monetary system in which money has no intrinsic value but is backed by the government.

Currency

________ is money and checks also function as money because they are used to pay suppliers.

private citizens

The expansions and contractions offset each other when ________ and firms write checks to one another.

Assets

________: The uses of the funds of a bank, including loans and reserves.

Money

________: Any items that are regularly used in economic transactions or exchanges and accepted by buyers and sellers.

Market Committee

Federal Open ________ (FOMC): The group that decides on monetary policy.

M2

________: M1 plus other assets, including deposits in savings and loans accounts and money market mutual funds.

Balance sheet

________: An account statement for a bank that shows the sources of its funds (liabilities), as well as the uses of its funds (assets)

Monetary Policy

________: The range of actions taken by the Federal Reserve to influence the level of GDP or inflation.

Principle of Voluntary Exchange

________: A voluntary exchange between two people makes both people better off.

Barter

________: The exchange of one good or service for another.

Liabilities

________: The sources of funds for a bank, including deposits and owners equity.

M1

________: The sum of currency in the hands of the public, demand deposits, other checkable deposits, and travelers checks.

Money Multiplier

________: The ratio of the increase in total checking account deposits to an initial cash deposit.

Reserve ratio

________: The ratio of reserves to deposits.

Reserves

________: The portion of banks deposits set aside in either vault cash or as deposits at the Federal Reserve.

Owners equity

________: The funds provided to a bank by its owners.

Lender of last resort

________: A central bank is the ________, the last place, all others have failed, from which banks in emergency situations can obtain loans.

Double Coincidence of Wants

________: The problem in a system of barter is that one person may not have what the other desires.

Economic exchange

________: One party hands over currency and the other party hands over goods and services.

Gold standard

________: A monetary system in which gold backs up paper money.

Excess reserves

_____________: Any additional reserves that a bank holds above-required reserves.

Federal Reserve Bank

_________________: One of 12 regional banks that are an official part of the Federal Reserve System.

Board of Governors of the Federal Reserve

____________: The seven-person governing body of the Federal Reserve System in Washington, D.C.

Federal Open Market Committee

_____________ (FOMC): The group that decides on monetary policy. It consists of the seven members of the Board of Governors plus five of 12 regional bank presidents on a rotating basis.