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.