econ 101 ch 14

Which description best fits the definition of balance sheet?

A balance sheet is an accounting tool that lists assets and liabilities

Which term is best defined as an institution that operates between a saver with financial assets to invest and an entity that will borrow those assets and pay a rate of return?

Financial intermediary

What term is best defined as the excess of the asset value over and above the amount of the liability?

net worth

Because of its requirement of a double coincidence of wants, barter ___________________

stunts the growth in the economy is an inefficient way to exchange goods and services does not accommodate future contracts well

M2 is calculated by adding together time deposits, certificate of deposits, savings deposits, and ___________.

traveler's checks currency money market mutual funds

Bob Bank has $5 million in reserves, $16 million in deposits, $6 million in bonds and $4 million in loans. What is the bank's net worth?

$ -1 million

Stealth bank holds deposits of $600 million. It holds reserves of $30 million and government bonds worth $80 million. The current market value of the bank's loans is $400 million. What is the value of the bank's total liabilities?

$600 million

If the required reserve ratio for a bank is 0.05, and banks lend out all excess reserves, what is the money multiplier (MM)?

20

Which of the following best explains why banks reduce transaction costs?

Banks are trying to make transactions easier and safer to create money. Banks are attempting to act as financial intermediaries. Banks are trying to bring buyers and lenders together.

Which of the following explains why deposits are a liability for banks?

Banks must be able to give the money back to customers in the form of withdraw.

_____ are similar to loans in that they are guaranteed future payments to the bank, making them ________.

Bonds; assets

______ refers to lending a variety of loans, such as car loans, home loans, and business loans to a variety of customers.

Diversification

In addition to be "a unit of account," which of the following is a function of money?

It serves as a standard of deferred payments. It serves as a medium of exchange. It serves as a store of value.

Traveler's checks are included in...

M1 and M2 money supply

Which of the following is the money supply that includes currency, checkable deposits, traveler's checks, savings deposits, money market funds, and certificates of deposit?

M2 money supply

Which function of money means that money serves as "an intermediary between the buyer and the seller"?

Money serves as a medium of exchange.

Which of the following is an example of an asset on Bank A's balance sheet?

a customer's certificate of deposit

In general, lending institutions, such as banks, come under financial pressure because of:

a widespread decline in the value of their assets.

What term is best defined as an item of value owned by a firm or an individual?

asset

Borrowers are legally required to pay banks back when they take out a loan. Because of this, loans are considered _______ for banks.

assets

If the Federal Reserve System raised the amount of reserves that banks are obliged to hold to 20%, then:

both the money multiplier and supply of money in the economy will decrease.

In financial markets, the process of banks providing loans is closely related to the:

creation of money.

An instruction to the user's bank to transfer money directly and immediately from a bank account to a seller is called a ________.

debit card

A type of money that is ordered by some authority to be accepted as a medium of exchange and has no intrinsic value is called:

fiat money

The asset-liability time mismatch, which can cause severe problems for a bank, refers to the possibility for customers to withdraw a bank's liabilities _____________________ while customers repay its assets __________________.

in the short term; in the long term

A bank could have a negative net worth if __________.

it has an unexpected increase in the amount of loans that are not repaid

The _________ of an investment is determined by how easy it is to sell an asset at any given time.

liquidity