Macroeconomics Chapter 14

Front 1

Why is money a medium of exchange?

Back 1

money is usable for buying and selling goods and services.

Front 2

Why is money a unit of account?

Back 2

money - measures the relative worth of a wide variety of goods, services, and resources.

Front 3

Why is money a store of value?

Back 3

money enables people to transfer purchasing power from the present to the future.

Hint 3

storing money

Front 4

What are the functions of money?

Back 4

• Medium of Exchange
• Unit of Account
• Store of Value

Front 5

What is an asset's liquidity?

Back 5

The ease with which it can be converted quickly into form of money, with little or no loss of purchasing power. Also - spendability.

Front 6

Which of the following is perfectly liquid?

• Bonds
• Stocks
• Gold
• Cash

Back 6

Cash

Front 7

What components are included in M1?

Back 7

• Currency (coins and paper money)
• Checkable deposits

Front 8

What is the US central bank?

Back 8

The Federal Reserve

Front 9

Who issues coins in the US?

Back 9

The US Treasury

Front 10

Who issues paper money in the US?

Back 10

The Federal Reserve

Front 11

What are Federal Reserve Notes?

Back 11

Paper money issued by the Federal Reserve System.

Front 12

What is token money?

Back 12

The face value of any piece of currency is unrelated to its intrinsic value.

Front 13

Does the US have token money?

Back 13

Yes

Front 14

What is a thrift institution?

Back 14

Savings and loan associations, mutual savings banks, and credit unions supplement the commercial banks.

Front 15

Is currency held by the U.S Treasury, the Federal Reserve banks, commercial banks, or thrift institutions part of the money supply(M1)?

Back 15

No. - If it were, it would result in "double counting"

Front 16

What does M2 include.

Back 16

M1 + Near-monies

Front 17

What are near-monies?

Back 17

highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into currency or checkable deposits.

Front 18

What are the categories of near-monies?

Back 18

• Savings deposits (including money market deposit accounts)
• Small-denominated (less that 100k) time deposits.
• Money market mutual funds held by individuals.

Front 19

Are credit cards money?

Back 19

No. They are way of obtaining a short-term loan from the financial institution that issued the card.

Front 20

Money functions primarily as a medium of _____, a unit of _____, and a store of value.

Back 20

• exchange
• account

Front 21

Money is usable for buying and selling goods and is therefore considered what?

• A medium of exchange
• Not very liquid
• A checkable deposit
• Debt

Back 21

A medium of exchange

Front 22

Money enables society to gain which of the following advantages?

• Ability to barter more effectively
• Banking specialization
• Geographic specialization
• Human specialization

Back 22

• Geographic specialization
• Human specialization

Front 23

Money serves as a store of _____ that enables people to transfer purchasing power from the present to the future.

Back 23

value

Front 24

True or false: People store some of their wealth as money in order to buy things later.

Back 24

True

Front 25

Real estate, stocks, bonds, and gold are examples of assets other than money that hold ____.

Back 25

value

Front 26

M1 and M2 are components of the ____ supply.

Back 26

money

Front 27

Which of the following are components of M1?

• Currency in the hands of the public
• Money market mutual funds
• All checkable deposits
• Savings deposits including money market deposit accounts

Back 27

• Currency in the hands of the public
• All checkable deposits

Front 28

The government has chosen to give itself the ability to freely manage the nation's _____ supply by choosing not to back the currency with anything tangible.

Back 28

money

Front 29

The U.S. Federal Reserve plays a critical role in:

• implementing fiscal and monetary policy
• lending money to foreign banks
• creating sovereign debt
• maintaining the purchasing power of the dollar.

Back 29

Maintaining the purchasing power of the dollar.

Front 30

In the United States, the monetary authorities are members of the Board of Governors of the _____ _____ system.

Back 30

Federal Reserve

Front 31

Why are currency and checkable deposits money?

Back 31

People accept them as a medium of exchange.

Front 32

Are paper money and checkable deposits debts?

Back 32

Yes.

Front 33

Paper money is a debt for whom?

Back 33

The Federal Reserve Banks

Front 34

Checkable deposits are a debt for whom?

Back 34

Commercial banks and thrift institutions.

Front 35

Will the government redeem paper money for anything tangible, such as gold?

Back 35

No.

Front 36

Why does the government not back the currency with anything tangible?

Back 36

The money supply will not vary by how much gold is available. This gives the government the ability to freely "manage" the nation's money supply.

Front 37

Why are people confident that paper money will be accepted as a medium of exchange?

Back 37

The government has designated currency as legal tender.

Front 38

Why are people confident that checkable deposits will be accepted as a medium of exchange?

Back 38

Government agencies insure individual deposits of up to $250,000 at commercial banks and thrifts.

Front 39

Are checkable deposits considered legal tender?

Back 39

No, the government has never decreed checks to be legal tender.

Front 40

Where does money get its value from?

Back 40

Its scarcity relative to its utility.

Front 41

What is the purchasing power of money?

Back 41

The amount of goods and services a unit of money will buy.

Front 42

Who is the central authority of the U.S. money and banking system?

• US Board of Governors
• US Department of Treasury
• US Mint
• Federal Reserve System

Back 42

US Board of Governors

Front 43

_____ money consists of Federal Reserve Notes issued by the Federal Reserve System.

Back 43

Paper

Front 44

Which of the following characteristics of checks has made checkable deposits a large component of the M1 money supply?

• Safety
• Convenience
• Extrinsic value
• Intrinsic value

Back 44

• Safety
• Convenience

Front 45

True or False: People can convert checkable deposits into paper money and coins on demand.

Back 45

True

Front 46

Which of the following are direct roles of commercial banks?

• Accept deposits of households and businesses
• Invest money in the stock market
• Make available a wide variety of loans
• Accept deposits and invests in mutual funds
• Keep money safe until demanded via checks

Back 46

• Accept deposits of households and businesses
• Make available a wide variety of loans
• Keep money safe until demanded

The other two options are carried out by a third-party intermediary.

Front 47

What is barter?

Back 47

An exchange of goods without the use of money.

Front 48

What does barter require to be successful?

Back 48

A double coincidence of wants.

Front 49

True or False: M1 is known as transaction money.

Back 49

True because M1 is money that is used in transactions.

Front 50

Which of the following is a function of commercial bank loans?

• Finance consumer purchases of durable goods.
• Provide unemployment benefits to qualifying persons.
• Provide supplementary income for low-income households
• Provide short-term financial capital to businesses

Back 50

• Finance consumer purchases of durable goods.
• Provide short-term financial capital to businesses.

Front 51

What is meant by the term "thrifts"?

• Mutual savings banks
• Checkable deposits
• Savings and loan associations
• Commercial banks
• Credit unions

Back 51

• Mutual savings banks
• Savings and loan associations
• Credit Unions

Front 52

_________ accept deposits from and lend to members, who usually are a group of people who work for the same company.

Back 52

Credit Unions

Front 53

True or False: Currency held by the US Treasury, the Federal Reserve Banks, commercial banks, and thrift institutions is excluded from M1 and other measures of the money supply because money does not have value when it is held by these institutions.

Back 53

False. It is excluded to avoid counting the same amount of money twice.

Front 54

True or False: Credit cards are money.

Back 54

False. They are a convenient means of obtaining a short-term loan from the financial institution that issued the card.

Front 55

_____-_____ are certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into currency or checkable deposits.

Back 55

Near-monies

Hint 55

M1 + several ____-____ = M2

Front 56

A _____ is an interest-bearing account containing a variety of interest-bearing short-term securities.

Back 56

Money Market Deposit Account. (MMDA)

Front 57

True or False: The money supply in the United States essentially is "backed" by the government's ability to keep the value of money relatively stable?

Back 57

True.

Front 58

Are the Federal Reserve banks motivated by profit?

Back 58

No. The policies they follow are designed by the Board of Governors to promote the well-being of the economy as a whole.

Front 59

What are the functions of the Fed?

Back 59

• Issuing currency
• Setting reserve requirements and holding reserves
• Lending to financial institutions and serving as an emergency lender of last resort
• Providing for check collection
• Acting as a fiscal agent
• Supervising banks
• Controlling the money supply

Hint 59

There are 7.

Front 60

Why did Congress purposely establish the Fed as an independent agency of government?

Back 60

To protect the Fed from political pressures so that it could effectively control the money supply and maintain price stability.

Front 61

Which of the following have no intrinsic value?

• Checkable deposits
• Paper currency
• Coins
• Gold and silver

Back 61

• Checkable deposits
• Paper currency

Front 62

If the government backed the currency with something tangible like gold, then the ____ of money would vary with how much gold was available.

Back 62

supply

Front 63

Our confidence in the acceptability of paper money is strengthened because government has designated currency as _________.

Back 63

Legal tender

Front 64

Hyperinflation may cause stable currencies such as the US dollar or the Euro to come into widespread use as a result of the currency's _____.

• appreciation
• depreciation
• greater purchasing power
• relative scarcity

Back 64

depreciation

Front 65

General ______ of paper currency in exchange is more important than the government's decree that money is legal tender.

Back 65

acceptance

Front 66

What happens when money rapidly loses its purchasing power?

Back 66

It loses its role as money.

Front 67

What happens to the purchasing power of the dollar when the consumer price index rises?

Back 67

It falls.

Front 68

$V = _____

Back 68

1/P

Hint 68

V is the value of the dollar

Front 69

Which group votes on the open-market operations that are used to control the U.S. money supply and interest rates?

Back 69

The Federal Open Market Committee (FOMC)

Front 70

Why are members of the Federal Reserve's Board of Governors each given extremely long 14-year terms?

Back 70

Insulate members from political pressures that could result in inflation.

Front 71

What is the tendency of financial investors and financial services firms to take on greater risks because they assume they are at least partially insured against losses?

Back 71

Moral Hazard

Front 72

Mark transfers $1000 from his checking to his savings account. This transaction will ______ M1 and ______ M2.

Back 72

decrease M1 and not change M2.