The monetary system (Chapter 10)

Question 1

money

Answer 1

• the set of assets in an economy that people regularly use to buy goods and services.

Question 2

medium of exchange

Answer 2

• items used to buy goods and services

Question 3

share of value

Answer 3

• item used to transfer purchasing power for the future

Question 4

unit of account

Answer 4

• yardstick used to post prices and record debts

Question 5

commodity money

Answer 5

• money has intristic value

Question 6

fiat money

Answer 6

• money whose value depends on government order

Question 7

legal tender

Answer 7

• anything that by law must be acceptable for purchase by goods and services

Question 8

near money

Answer 8

• assets which are a store of value but not a medium of exchange

Question 9

money substitutes

Answer 9

• temporary medium of exchange but not a store of value

Question 10

liquidity

Answer 10

• ease to which an asset can be converted into a medium of exchange

Question 11

money supply

Answer 11

• total stock of money in the economy at any moment

Question 12

central bank

Answer 12

• government owned/operated institution that controls money supply

Question 13

financial intermediaries

Answer 13

• financial institutions through which savers can indirectly provide funds to borrowers

Question 14

balance sheet

Answer 14

• summarizes assets and liabilities

Question 15

assets

Answer 15

• items that you have a claim on

Question 16

liabilities

Answer 16

• items where someone has a claim against you

Question 17

owners equity

Answer 17

= assets - liabilties

Question 18

reserves

Answer 18

• deposits that banks have received but have not loaned out

Question 19

100% reserve banking

Answer 19

• commercial banks do not influence the money supply

Question 20

fractional reserve bankign

Answer 20

• only a fraction of deposits held as reserves

Question 21

reserve ratio (R)

Answer 21

• fraction of deposits held as reserves

Question 22

required reserves

Answer 22

• pre 1994, in Canada, 10% on demand deposits, 4 % on term deposits

Question 23

bank run

Answer 23

• depositors suspect banks to go bankrupt, try and withdraw balance

Question 24

money multiplier (MM)

Answer 24

• the amount of money the banking system generates at the end of each $$ reserves