Economics Chapter 8

an investment that represents ownership in a business

stock

describe how Americans invest their savings

stocks, mutual funds, bonds, savings accounts, certificate of deposits

method calculating how long it will take to double the value of an investment

rule of 72

What are the three basic functions of money?

Money as a medium of exchange, money as a unit of account, money as a store of value.

What is a commercial loan?

a debt based funding arrangement that a business can get up with a financial institution

durability, portability, divisibility, uniformity, limited supply, acceptability

characteristics of money

the transfer of funds from one bank or account to another as a result of cashing a check

check clearing

Explain the role of chat check flearing

check clearing happens electronically now it is used to go from the writer to the FED then to the

What are the different kinds of banks?

commercial banks, savings and loan associations, saving banks, credit unions, finance companies

what are the three types of loans that banks make to borrowers?

commercial loans, consumer loans, mortgage loans

any good used as a medium of echanges

commodity money

consists of objects that have value in themselves

commodity money

a periodic payment for the use of borrowed funds, interest is paid on a loan

interest

How is money as a unit of account a function of money?

is a means for comparing the values of goods and services

How is money as a medium of exchange a function of money?

is anything that is used to determine value during the exchange of goods and services

How is money as a store of value a function of money?

is something that keeps its value if it is stored rather than used.

the ease with which assets can be converted into cash

liquidity

a transaction in which a lender gives money to a borrower who agrees to repay the money at some point in the future

loan

What are finance companies?

make installment loans to consumers

What is home banking?

many banks allow customers to check account balances and make transfers and payments in computers

explain the rule of 72?

method of calculating how long it will have to double the value of an investment

a generally accepted medium of exchange that can be traded for goods and services or used to pay debts

money

What is limited supply?

money must be available only in limited quantities

the total amount of money in the economy

money supply

What is durability?

objects used as money must withstand physical wear and tear

what are commercial banks?

offer checking services, accept deposits and make loans

What is portability?

people need to be able to take money with them as they go about their business.

What is electronic banking?

the role of computers in banking has increased dramatically

What is money supply?

the total amount of money in an economy.

Explain the role of the FED

they are the gate of the US Economy it is the bank of the US government and it regulates the nation's financial institutions.

What is divisibility?

to be useful, money must be easily divided into smaller denominations, or units of value

what are saving banks?

traditionally served people who made smaller deposits and transactions than commercial banks wished to handle

What are savings and loan associations?

were originally chartered to lend money for home building in the mid 1800s

the amount of money borrowed or the amount of money still owed on a loan apart from the interest

principal

setting aside a portion of income for use in the future

saving

What is ACHs?

transfers funds automatically from customer's accounts to creditors' accounts

What is a mortgage loan?

a loan used in which property or real estate is used as a collateral

what is a credit score?

a numerical expression based on a level analysis of a person's credit files, to represent the credit worthiness of that person.

What is a consumer loan?

an amount of money lent to an individual for personnel, family, or household purposes

What is uniformity?

any two units of money must be uniform, that is the same in terms of what they will buy

What are credit unions?

are cooperative lending associations for particular groups, usually employers of a specific firm or government agency

What is stored value cards?

are embedded with magnetic strips or computer chips with account balance information.

What is debit cards?

are used to withdraw money directly from a checking account

anything owned to which a market value can be assigned

assets

a business whose main purpose is to receive deposits and make loans.

bank

an early form of paper currency, issued by banks to clients who made deposits of gold or silver

banknotes

Explain how banks make a profit?

banks will lend money to customers at a higher rate than they pay to depositors or than they borrow the difference known as margin is kept by the bank

investment that represents a loan to a government or corporation and guarantees the lender a fixed rate of interest

bond

a plan for spending and saving

budget

What constitutes M2?

consists of all the assets in M1 plus deposits, in savings accounts and money market mutual funds

What constitutes M1?

consists of assets that have liquidity or the ability to be used as or easily countered into cash

a card authorizing the user to buy goods. and services with fund borrowed from the bank, store, or other business that issued the cards

credit cards

What is ATM?

customers can use them to deposit money, withdraw cash and obtain account information

What are the six characteristics of money?

durability, portability, divisibility, uniformity, limited supply, acceptability

what services do banks offer?

electronic banking, ATM, Debit cards, ACHs, Home banking, stored value cards

how can you establish a good credit?

establishing a good credit score is important best way is to make sure all of your bills are payed on time and don't apply for too many credit cards/debit cards and use your money very wisely.

What is acceptability?

everyone must be able to exchange the money and services

what is the difference between a corporate bond and a junk bond?

expand business, and has a lower interest rate. junk bonds are very risky but have higher interest rates

also called "legal tender" has value because the government decreed that is an acceptable means to pay debts

fiat money

currency not backed by gold or silver standard, all paper money today

fiat money