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
