Ch 14 - Money and Banking

Liquidity

Ability to turn an asset into cash rapidly and without loss.

Unit of Account

Money is used to measure and compare.

barter economy

A(n) ________ requires the exchange of goods of similar or equal value, which makes it tricky to assign value to goods.

Legal tender

Is the coin or paper currency which must be accepted in exchange for goods or services by the decree of the government.

Store of Value

Money is used to accumulate wealth.

Money

is the most efficient method of exchanging goods and services compared to bartering.

transaction accounts

The Fed keeps a fraction (10 %) of the funds deposited in ________ as reserves.

M2

includes everything in M1 plus money deposited in savings and other miscellaneous items.

Fiat

Money refers to the coins and paper money which have no standing behind them except the act that they are legal tender.

Monetary base

Is bank reserves plus currency in circulation.

Credit cards

Are a convenient way to take a miniscule loan form a bank.

fiat monetary system

A(n) ________ is more flexible in the sense that gold holdings of the government need not increase in order to expand the nations supply of money.

Medium of exchange

Money used to buy goods and services.

acceptable method of payment

Money is anything which society deems as a(n) ________ in exchange for a good or service.

transaction accounts

The ________ are part of the money supply as measured by M1 and M2, meaning that the money supply is increased when banks make loans with their excess reserves.

demand deposits

Checking accounts are called ________, while savings, loans, credit unions, and such are called other checkable deposits.

transaction accounts

The money deposited into ________ is part of the money supply.

Liquidity

ability to turn an asset into cash rapidly and without loss

Medium of exchange

Money used to buy goods and services

Unit of Account

Money is used to measure and compare

Store of Value

Money is used to accumulate wealth

Monetary base

is bank reserves plus currency in circulation

Secondary market

the lender need not hold the government security until it matures, at the time the kender may sell the government security to another investor