Macroeconomics Chapter 14 My Econ Lab

The economic definition of money​ is

Any asset that people are generally willing to accept in exchange for goods and services.

Distinguish among​ money, income, and wealth.

A​ person's money is the currency held and the checking account​ balance, income is the earning and wealth is equal to value of assets minus all debts

Which of the following is included in M2 but not​ M1?

Money market deposit accounts in banks

Which one of the following is not one of the policy tools the Fed uses to control the money​ supply?

Moral suasion.

The U.S. dollar can best be described as

fiat money

What is fiat​ money?

money that is authorized by a central bank and that does not have to be exchanged for gold or some other commodity money

What are the largest asset and the largest liability of a typical​ bank

. Loans are the largest asset and deposits are the largest liability of a typical bank.

Which of the following is not a function of​ money?

Commodity.

best explains the difference between commodity money and fiat​ money?

Fiat money has no value except as​ money, whereas commodity money has value independent of its use as money.

The Federal Reserve uses two definitions of the money​ supply, M1 and​ M2, because

M1 is a narrow definition focusing more on​ liquidity, whereas M2 is a broader definition of the money supply.

When the Federal Reserve buys bonds through open market operations commabuys bonds through open market operations,

The money supply will increase

How do the banks​ "create money"?

When there is an increase in checking account​ deposits, banks gain reserves and make new​ loans, and the money supply expands.

The use of money

allows for greater specialization. eliminates the double coincidence of wants. reduces the transaction costs of exchange.

Reserve requirements are changed infrequently because

banks set​ long-term policy​ decisions, loan​ decisions, and deposit decisions based on the reserve requirement

A higher required reserve ratio​ _________ the value of the simple deposit multiplier.

decreases

Very high rates of inflation are called

hyperinflation.

Money serves as a standard of deferred payment when

payments agreed to today but made in the future are in terms of money.

Money serves as a unit of account when

prices of goods and services are stated in terms of money.

The central bank of a country controls the money​ supply, which equals the currency held by

the public plus their checking acount balances.

The simple deposit multiplier equals

the​ inverse, or​ reciprocal, of the required reserve ratio. the ratio of the amount of deposits created by banks to the amount of new reserves. the formula used to calculate the total increase in checking account deposits from an increase in bank reserves.

When money is acting as a store of​ value, it allows an individual to

transfer​ dollars, and therefore purchasing​ power, into the future.