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72 Cards in this Set
- Front
- Back
- 3rd side (hint)
Why is money a medium of exchange? |
money is usable for buying and selling goods and services. |
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Why is money a unit of account? |
money - measures the relative worth of a wide variety of goods, services, and resources. |
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Why is money a store of value? |
money enables people to transfer purchasing power from the present to the future. |
storing money
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What are the functions of money? |
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What is an asset's liquidity? |
The ease with which it can be converted quickly into form of money, with little or no loss of purchasing power. Also - spendability. |
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Which of the following is perfectly liquid?
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Cash |
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What components are included in M1? |
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What is the US central bank? |
The Federal Reserve |
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Who issues coins in the US? |
The US Treasury |
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Who issues paper money in the US? |
The Federal Reserve |
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What are Federal Reserve Notes? |
Paper money issued by the Federal Reserve System. |
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What is token money? |
The face value of any piece of currency is unrelated to its intrinsic value. |
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Does the US have token money? |
Yes |
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What is a thrift institution? |
Savings and loan associations, mutual savings banks, and credit unions supplement the commercial banks. |
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Is currency held by the U.S Treasury, the Federal Reserve banks, commercial banks, or thrift institutions part of the money supply(M1)? |
No. - If it were, it would result in "double counting" |
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What does M2 include. |
M1 + Near-monies |
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What are near-monies? |
highly liquid financial assets that do not function directly as a medium of exchange but can be readily converted into currency or checkable deposits. |
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What are the categories of near-monies? |
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Are credit cards money? |
No. They are way of obtaining a short-term loan from the financial institution that issued the card. |
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Money functions primarily as a medium of _____, a unit of _____, and a store of value. |
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Money is usable for buying and selling goods and is therefore considered what?
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A medium of exchange |
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Money enables society to gain which of the following advantages?
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Money serves as a store of _____ that enables people to transfer purchasing power from the present to the future. |
value |
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True or false: People store some of their wealth as money in order to buy things later. |
True |
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Real estate, stocks, bonds, and gold are examples of assets other than money that hold ____. |
value |
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M1 and M2 are components of the ____ supply. |
money |
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Which of the following are components of M1?
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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. |
money |
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The U.S. Federal Reserve plays a critical role in:
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Maintaining the purchasing power of the dollar. |
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In the United States, the monetary authorities are members of the Board of Governors of the _____ _____ system. |
Federal Reserve |
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Why are currency and checkable deposits money? |
People accept them as a medium of exchange. |
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Are paper money and checkable deposits debts? |
Yes. |
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Paper money is a debt for whom? |
The Federal Reserve Banks |
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Checkable deposits are a debt for whom? |
Commercial banks and thrift institutions. |
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Will the government redeem paper money for anything tangible, such as gold? |
No. |
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Why does the government not back the currency with anything tangible? |
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. |
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Why are people confident that paper money will be accepted as a medium of exchange? |
The government has designated currency as legal tender. |
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Why are people confident that checkable deposits will be accepted as a medium of exchange? |
Government agencies insure individual deposits of up to $250,000 at commercial banks and thrifts. |
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Are checkable deposits considered legal tender? |
No, the government has never decreed checks to be legal tender. |
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Where does money get its value from? |
Its scarcity relative to its utility. |
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What is the purchasing power of money? |
The amount of goods and services a unit of money will buy. |
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Who is the central authority of the U.S. money and banking system?
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US Board of Governors |
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_____ money consists of Federal Reserve Notes issued by the Federal Reserve System. |
Paper |
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Which of the following characteristics of checks has made checkable deposits a large component of the M1 money supply?
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True or False: People can convert checkable deposits into paper money and coins on demand. |
True |
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Which of the following are direct roles of commercial banks?
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The other two options are carried out by a third-party intermediary. |
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What is barter? |
An exchange of goods without the use of money. |
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What does barter require to be successful? |
A double coincidence of wants. |
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True or False: M1 is known as transaction money. |
True because M1 is money that is used in transactions. |
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Which of the following is a function of commercial bank loans?
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What is meant by the term "thrifts"?
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_________ accept deposits from and lend to members, who usually are a group of people who work for the same company. |
Credit Unions |
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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. |
False. It is excluded to avoid counting the same amount of money twice. |
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True or False: Credit cards are money. |
False. They are a convenient means of obtaining a short-term loan from the financial institution that issued the card. |
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_____-_____ 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. |
Near-monies |
M1 + several ____-____ = M2 |
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A _____ is an interest-bearing account containing a variety of interest-bearing short-term securities.
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Money Market Deposit Account. (MMDA) |
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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? |
True. |
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Are the Federal Reserve banks motivated by profit? |
No. The policies they follow are designed by the Board of Governors to promote the well-being of the economy as a whole. |
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What are the functions of the Fed? |
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There are 7. |
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Why did Congress purposely establish the Fed as an independent agency of government? |
To protect the Fed from political pressures so that it could effectively control the money supply and maintain price stability. |
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Which of the following have no intrinsic value?
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If the government backed the currency with something tangible like gold, then the ____ of money would vary with how much gold was available. |
supply |
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Our confidence in the acceptability of paper money is strengthened because government has designated currency as _________. |
Legal tender |
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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 _____.
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depreciation |
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General ______ of paper currency in exchange is more important than the government's decree that money is legal tender. |
acceptance |
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What happens when money rapidly loses its purchasing power? |
It loses its role as money. |
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What happens to the purchasing power of the dollar when the consumer price index rises? |
It falls. |
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$V = _____ |
1/P |
V is the value of the dollar |
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Which group votes on the open-market operations that are used to control the U.S. money supply and interest rates? |
The Federal Open Market Committee (FOMC) |
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Why are members of the Federal Reserve's Board of Governors each given extremely long 14-year terms? |
Insulate members from political pressures that could result in inflation. |
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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? |
Moral Hazard |
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Mark transfers $1000 from his checking to his savings account. This transaction will ______ M1 and ______ M2. |
decrease M1 and not change M2. |
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