MACROECONOMICS: BANKING TEST
Study online at https://quizlet.com/_gw05td
1. Money: Any asset that can easily be used to purchase goods and services
Medium of exchange - traded for goods, not consumption
Store of value - holds power over time
Unit of account - can be a measure of the value of other goods
2. Types of Money: Commodity Money
Commodity Backed Money
Fiat Money
3. COMMODITY MONEY: A good that had value in other uses
Ex. If the material used to make a quarter costs the amount that a quarter costs
4. COMMODITY BACKED MONEY (In the textbook): An asset that takes the place
of a commodity
5. What's not money: Any asset included in stocks, bonds etc.
Credit cards
6. Why is too much money in circulation a bad thing: The value of the dollar is
worth less, creating inflation
7. Why is too little money in circulation a bad thing: The value of the dollar is
worth more, creating deflation
8. What would happen if inflation was negative: It would cause a deflationary
spiral, deflation or 0% would cause people not to buy things, creating a deflationary
spiral
9. Is zero percent inflation bad: It is not ideal because an economy would be
getting close to deflation
10. What types of assets do banks use: Banks use liquid assets to let people buy
illiquid things (harder to sell things)
11. What are liquid assets: Money that can easily be converted to cash when
needed
Ex. Cash, stocks and bonds
Goods that are hard to sell, such as houses or cars, are not liquid because the
money is not easily convertible to cash
1/6
, MACROECONOMICS: BANKING TEST
Study online at https://quizlet.com/_gw05td
12. What are bank reserves: Banks required to hold on to certain amount in
currency or a Federal Reserve account
13. ASSETS: Economic resources (things of value) owned by a firm
Money and other valuables belonging to an individual or business
LOANS OWED AND RESERVES
What the bank owns that has a value
14. What are the three assets that a bank holds onto: Loans
Reserve requirement
Bonds
15. Liabilities: Deposits made by customers
This is a liability because a customer can ask for their money at any point
16. Reserve Ratio: Percent of deposits held as reserves
Minimum percentage set by the Federal Reserve
Banks must have the required reserves at the end of each day
17. Federal Funds Market: If banks are short of reserve requirements, they can
borrow from other banks
Usually one day loans, at the "federal funds rate"
Banks can also get loans from Federal Reserve at the "discount rate (THE RATE
IS SUPPOSED TO BE HIGHER - CURRENTLY 5.5% WHICH IS A SIGNIFICANT
PENALTY)
18. What type of rates does the Federal Reserve control: The Federal Funds
Rate and Discount Rate
The banks raise their interest rates according to the federal funds rate/discount rate
19. What type of policy is it when the Federal Reserve raises their interest
rate: Contractionary Monetary Policy
Causes banks to raise interest rates
2/6
Study online at https://quizlet.com/_gw05td
1. Money: Any asset that can easily be used to purchase goods and services
Medium of exchange - traded for goods, not consumption
Store of value - holds power over time
Unit of account - can be a measure of the value of other goods
2. Types of Money: Commodity Money
Commodity Backed Money
Fiat Money
3. COMMODITY MONEY: A good that had value in other uses
Ex. If the material used to make a quarter costs the amount that a quarter costs
4. COMMODITY BACKED MONEY (In the textbook): An asset that takes the place
of a commodity
5. What's not money: Any asset included in stocks, bonds etc.
Credit cards
6. Why is too much money in circulation a bad thing: The value of the dollar is
worth less, creating inflation
7. Why is too little money in circulation a bad thing: The value of the dollar is
worth more, creating deflation
8. What would happen if inflation was negative: It would cause a deflationary
spiral, deflation or 0% would cause people not to buy things, creating a deflationary
spiral
9. Is zero percent inflation bad: It is not ideal because an economy would be
getting close to deflation
10. What types of assets do banks use: Banks use liquid assets to let people buy
illiquid things (harder to sell things)
11. What are liquid assets: Money that can easily be converted to cash when
needed
Ex. Cash, stocks and bonds
Goods that are hard to sell, such as houses or cars, are not liquid because the
money is not easily convertible to cash
1/6
, MACROECONOMICS: BANKING TEST
Study online at https://quizlet.com/_gw05td
12. What are bank reserves: Banks required to hold on to certain amount in
currency or a Federal Reserve account
13. ASSETS: Economic resources (things of value) owned by a firm
Money and other valuables belonging to an individual or business
LOANS OWED AND RESERVES
What the bank owns that has a value
14. What are the three assets that a bank holds onto: Loans
Reserve requirement
Bonds
15. Liabilities: Deposits made by customers
This is a liability because a customer can ask for their money at any point
16. Reserve Ratio: Percent of deposits held as reserves
Minimum percentage set by the Federal Reserve
Banks must have the required reserves at the end of each day
17. Federal Funds Market: If banks are short of reserve requirements, they can
borrow from other banks
Usually one day loans, at the "federal funds rate"
Banks can also get loans from Federal Reserve at the "discount rate (THE RATE
IS SUPPOSED TO BE HIGHER - CURRENTLY 5.5% WHICH IS A SIGNIFICANT
PENALTY)
18. What type of rates does the Federal Reserve control: The Federal Funds
Rate and Discount Rate
The banks raise their interest rates according to the federal funds rate/discount rate
19. What type of policy is it when the Federal Reserve raises their interest
rate: Contractionary Monetary Policy
Causes banks to raise interest rates
2/6
