Economics Chapter 10 – Money And Banking Test Questions – Flashcards
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Money
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anything that serves as a medium of exchange,, a unit of account, and a store of value
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Medium of Exchange
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anything that is used to determine value during the exchange of goods and services
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Barter
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the direct exchange of one set of goods or services for another
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Unit of Account
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a means for comparing the values of goods and services
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Store of Value
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something that keeps its value if it is stored rather than used
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Currency
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coins and paper bills used as money
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Commodity Money
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objects that have value in themselves and that are also used as money
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Representative Money
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objects that have value because the holder can exchange them for something else of value
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Fiat Money
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money that has value because the government has ordered that it is an acceptable means to pay debts
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Three Uses of Money
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1.) Money as Medium of Exchange 2.) Money as a Unit of Account 3.) Money as a Store Value
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The 6 Characteristics of Money
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1.) Durability 2.) Portability 3.) Divisibility 4.) Uniformity 5.) Limited Supply 6.) Acceptability
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Bank
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an institution for receiving, keeping, and lending money.
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National Bank
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a bank chartered, or licensed, by the national government
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Bank run
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Widespread panic in which great numbers of people try to redeem their paper money
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greenback
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paper currency issued during the Civil War
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Gold Standard
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a monetary system in which paper money and coins are equal to the value of a certain amount of gold
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Federal Reserve System
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the nation's central banking system
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Central Bank
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bank that can lend to other banks in time of need
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Member Bank
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ban that belong to the Federal Reserve
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Federal Reserve note
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the national currency that we use today in the United States
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Great Depression
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the severe economic decline that began in 1929 and lasted for more than a decade
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Federal Deposit Insurance Corporation (FDIC)
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the government agency that insures customer deposits if a bank fails
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The First Bank of the United States
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- to hold the money that the government collected in taxes - to help the gov't carry out its powers to tax, borrow money in the public interest, and regulate interstate and foreign commerce - to issue representative money in the form of bank notes, which were backed by gold and silver - to ensure that state-charted banks held sufficient gold and silver to exchange for bank notes should the demand rise
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The Free Banking Era
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1) Bank runs and panics 2.) Wildcat banks 3.) Fraud 4.) Many different currencies
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National Banking Acts of 1863 & 1864
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1.) the power to charter banks 2.) the power to require banks to hold adequate gold and silver reserves to cover their bank notes 3.) the power to issue a single national currency
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Gold standard advantages
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1.) it set a definite value for the dollar 2.) the government could issue currency only if it had gold in the treasury to back notes
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S&L Crisis reasons
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- Deregulation - High interest rates - Bad loans - fraud
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Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA)
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essentially abolished the independence of saving and loan industry
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Money Supply
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all money available in the United States economy
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liquidity
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the ability to be used as or directly converted to cash
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demand deposit
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the money in checking accounts
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money market mutual
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a fund that pools money from small savers to purchase short-term government and corporate securities
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Fractional reserve banking
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a banking system that keeps only a fraction of funds on hand and lends out the remainder
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default
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failure to pay back a loan
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mortgage
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a specific type of loan that is used to buy real estate
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Credit card
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a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services
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Interest
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the price paid for the use of borrowed money
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Principal
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the amount of money borrowed
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Debit card
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a card used to withdraw money
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Creditor
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person or institution to whom money is owed
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M1
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`represents money that people can gain access to easily and immediately to pay for goods and services
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M2
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consists of all assets in M1 plus several additional assets (cannot be sed as cash directly but can be converted to cash fairly easily)
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Functions of Financial Institutions
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- Storing money - Saving money - loans - Mortgages - Credit Cards - Simple and Compound Interest
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Four most common ways to save money:
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1.) Saving accounts 2.) Checking Accounts 3.) Money market accounts 4.) Certificates of Deposits (CDs)
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Types of Financial Institutions
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- Commercial Banks - Saving and Loans Associations - Saving Banks - Credit Unions - Finance Companies
