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Banking and Fin. Ch4

Chapter 4 Test Review

QuestionAnswer
The liquid assets held by banks and individuals Money Supply
Extra money in the economy can cause Inflation
A measure of how quickly things may be converted to something of value like cash Liquidity
Money that can be spent immediately, includes paper and metallic money and things such as checking accounts M1
All the money in M1 plus short term investments M2
Represents all available liquid money. It is M2 minus time deposits and includes all money market funds MZM
Various measures used by the Federal Reserve to add up components of the money supply Aggregate Measures
Base money supply M1
Money that is based on some item of value such as the Gold Standard Commodity Money
Money that is deemed legal tender by the government Fiat Money
Who is the legal authority that makes decisions regarding money Federal Reserve
Maintains sufficient deposits to cover anticipated withdrawals Fractional-Reserve System
performs the task of printing currency. The Bureau of Engraving and Printing
Vault cash (cash on hand) and the required percentage amounts on deposit in the Federal Reserve District Bank Primary Reserves
Securities the bank purchases from the federal government and deposits that are due from other banks Secondary Reserves
Reserves held by a bank beyond its reserve requirement Excess Reserves
A record of financial transactions Ledger Entries
The primary way banks make money Interest Rates
Interest rates are determined by Market forces Economic conditions at large The inflation outlook The cost of money
Which type of interest rate does the Fed control Discount Rate
The amount of interest charged for short-term, interbank loans Federal Funds Rate
The interest rate that the Federal Reserve sets and charges for loans to member banks Discount Rate
The rate that banks charge their best and most reliable customers Prime Rate
The goals of the Federal Reserve’s monetary policy are to 1. Maintain economic growth 2. Stabilize prices 3. Help international payments flow
Money on deposit, minus _____________, can be loaned by banks to customers. Reserve Requirement
The _____________________________ is a phenomenon that creates new deposits from lending Multiplier Effect
The official currency of the United States can be classified as _________ Fiat Money
The _________ rate is usually the same among major banks Prime
Created by: ajw7d3