chapter 10 money and banking

Money

anything that serves as a medium of exchange, a unit of account, and a store of value

medium of exchange

anything that is used to determine value during the exchange of goods and services

barter

the direct exchange of one set of goods or services for another

unit of account

a means for comparing the values of goods and services

store of value

something that keeps its

value if it is stored rather

than spent

currency

coins and

paper bills used as

money

commodity money

objects that have value

in and of themselves and

that are also used as

money

representative money

objects that have value

because the holder

can exchange them for

something else of value

specie

coined money,

usually gold or silver,

used to back paper

money

fiat money

objects that have value because a government has decreed that they are an acceptable means to pay debt

bank

an institution for

receiving, keeping, and

lending money

national bank

a bank chartered by the federal

government

bank run

a widespread panic in which many people try to redeem their paper money at the same time

greenback

a paper currency issued during

the Civil War

gold standard

a monetary system in which paper money and coins had the value of certain amounts of gold

central bank

a bank

that can lend to other

banks in time of need

member bank

a bank

that belongs to the

Federal Reserve System

foreclosure

the

seizure of property from

borrowers who are

unable to repay their

loans

money supply

all the

money available in the

United States economy

liquidity

the ability to

be used as, or directly

converted into, cash

demand dep

money market mutual

fund

a fund that pools

money from small savers

to purchase short-term

government and corporate

securities

fractional reserve

banking

default

failing to pay

back a loan

mortgage

a specific

type of loan that is used

to buy real estate

credit card

card entitling its owner to

buy goods and services

based on the owner's

promise to pay for those

goods and services

interest

the price paid for the use of borrowed money

principal

the amount of

money borrowed

debit card

a card used to withdraw money from

a bank account

creditor

a person or

institution to whom

money is owed

The difference between representative money and fiat money is that…

representative money can be converted into silver or gold, fiat money cannot

why is divisibility an important characteristic of money

it would be hard to use money if you always had to use exact change

which type of money has no value of its own but is valuable because it can be changed for something else of value

commodity money

why would commodity money be hard to use in most societies

it is often not portable, durable, or divisible

which of the following is an example of money as a unit of account

comparing camera prices at different store before buying one

which of the following is an example of representative money

an IOU note

what condition is necessary for a fiat money system to work

money owed by customers must be paid on time

in the 1800s, people in mining towns in the west often paid for goods with gold nuggets or gold dust. What was the function of gold

it was used as a currency

in the 1900s, the Russian people llost confidence in the valyue of the ruble, and were no longer willing to sell goods and services in exchange for the Russian currency. Which characteristic of money did the Russian currency lack?

acceptability

in the early years of the united states, the federalists favored

a centralized banking system

during the free banking era, banking in the United States was dominated by which of the following

state-chartered banks

As part of the nation’s recovery from the Great Depression of the 1930s, the banking system was reformed in which of the following ways

the banking system was taken off the gold standard

which of the following caused the savings and loan crisis

high interest rates, bad loans, and fraud

what is one reason the first bank of the united states was established

the money system was confusing because every state had its own currency

what is one important disadvantage of the gold standard

it limits the amount of money in circulation

what is one banking reform made during the great depression

the government created the federal deposit insurance corporation

what was one cause of the savings and loan crisis in the 1980s

losses from risky loans

which of the following has contributed to a recent banking crisis

sub prime mortgage

antifederalist opposed the national bank because

they feared the wealthy would use it to increase their power

how did high interest rates affect savings and loan banks in the 1980s

snl lost money because they had to pay high interest on current deposits but received low returns from loans they had made in the 1970ss

what is the difference between how simple and compound interests are paid

simple: on principal only

compound: on both principal and interest only

why are funds in checking accounts called demand deposity

they are kept without interest by the bank

what is an important characteristic of the m1 money supply 

liquidity

what is the larges source of income for banks

interest received on loans to customers

when you pay for a new cd with a debit card you are using the electronic form of a payment by

personal check

near money includes

savings deposits

commercial bank

makes installments loans for major purchases

savings and loan association

• cooperative lending association 

• specializes in consumer loans

• gives favorable interest rates to members

credit union

• provides saving accounts

• provide checking account

• makes loans to businesses and individuals

• offers debit cards and credit cards

finance company

• provides saving accounts to members

• make home building loans