Ch. 12

Which of the following assets would be considered least liquid?

an antique automobile

Money is

anything that sellers accept in exchange for goods and services

Commercial banks

are financial intermediaries that offer demand deposits

Transactions account balances

are included in the M1 definition of money

In a fractional reserve banking system,

banks keep less than 100 percent of deposits in cash

The FDIC was established in 1933 to

discourage bank runs by insuring deposits in commercial banks

The U.S. dollar is a fiduciary money because

it is not backed by any other assets

Savings, time deposits, and demand deposits are considered to be

liabilities of a depository institution

The use of money as a unit of account

lowers information costs relative to barter.

Which of the following is a component of M2?

overnight Eurodollar deposits

Using money as a medium of exchange

reduces the need for barter in the economy

Credit constitutes

savings made available to borrowers that is being used as a standard of deferred payment

In the United States, the reserve requirement is set by

the Federal Reserve Board

Liquidity is

the ability of an asset to be easily converted into money

A depository institution's profit is derived from the difference between

the interest rate it pays on deposits and the rate it receives on loans

The reserve requirement represents

the percentage of received funds that a bank must, by law, keep as reserves

Assets are considered illiquid (that is not liquid) when

they are relatively hard to sell and buy

The purpose of financial intermediaries is

to serve as middlemen between savers and borrowers

When do we say that a bank is loaned up?

when its excess reserves equal zero

Which of the following is not considered a financial intermediary?

The Federal Deposit Insurance Corporation (FDIC)

If you purchase an item today, but do not pay for it until the bill comes next month, that money is being used as

a standard of deferred payment

Perishable goods such as tomatoes and milk are never used as a form of money, primarily because they cannot function as

a store of purchasing power

Cash reserves over and above required reserves are called

excess reserves

The Gramm-Leach-Bliley Act (GLBA), passed by Congress in the year 2000, allows commercial banks to

expand their business into other areas of finance, including insurance and selling securities

The concept of double coincidence of wants refers to the fact that

for barter to take place, both parties have to want what the other party has