Term
| What are the primary functions of money? |
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Definition
Money acts as a:
1. Medium of exchange that is usable for buying and selling goods and services.
2. Unit of account that is the yardstick for measuring the relative worth of a wide variety of goods, services, and resources.
3. Store of value which enables people to transfer purchasing power from the present to the future. |
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Term
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Definition
| Liquidity refers to the ease with which an asset can be converted quickly into the most widely accepted and easily spent currency; which is most often cash. |
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Term
| Define M1, state the elements of M1, and clarify which element makes up the largest portion of M1 |
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Definition
| M1 refers to the most narrow definition of the money suppy because it has the highest degree of liquidity. M1 consists of currency in the hands of the public - which makes up 56% of M1, and checkable deposits, which makes up 44% of M1. |
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Term
| What are the seven basic functions of the Federal Reserve System? |
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Definition
1. Issue Currency
2. Set reserve requirements and hold reserves
3. Lend money - Discount Rate
4. Provide for check collection
5. Act as a fiscal agent
6. Supervise banks
7. Control the money supply |
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Term
| Define M2; list the elements of M2, stating the proportion of each in comparison to the others. |
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Definition
| M2 refers to all of the easily liquified assets including M1 and the near-monies: savings deposits including MMDAs (money market deposit accounts), small (less than $100,000) time deposits (CDs), and MMMFs (money market mutual funds) of individuals. Savings deposits including MMDAs account for the largest portion at 52% of M2; M1 counts for 18%, small time deposits account for 16%, and MMMFs account for 14%. |
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Term
| List 5 recent developments in banking and money that have changed the banking industry |
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Definition
1. The relative decline of the number of banks and thrifts
2. The consolidation among banks and thrifts
3. The convergence of services provided by financial institutions
4. The globalization of financial markets
5. Electronic payments |
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Term
| List 5 common methods for electronic payments |
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Definition
1. Credit cards
2. Debit cards
3. Automated clearing houses (ACHs)
4. Smart cards
5. Stored-value cards |
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Term
| List two characteristics of a fractional reserve banking system |
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Definition
1. Banks can create money through lending
2. Banks are vulnerable to "runs" or "panics" |
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