Economics Chapter 10 Flashcards

Money and Its Functions

• Money serves as a medium of exchange, unit of account, and store of value.
• Medium of exchange facilitates value determination during transactions involving goods and services.
• Barter is the direct trade of goods and services without using money.

Functions of Money

• Unit of account allows comparison of values between different goods and services.
• Store of value maintains its worth over time when saved instead of spent.

Types of Money

• Currency consists of coins and paper bills recognized as money.
• Commodity money holds intrinsic value and can be used as money (e.g., gold, silver).
• Representative money derives value from being exchangeable for a commodity of value.
• Specie is a form of money made from precious metals like gold or silver.
• Fiat money has value because a government declares it an acceptable payment method.

Banking Institutions

• Banks are institutions that manage money through receiving, safeguarding, and lending.
• National banks are chartered by the federal government to operate.
• A bank run occurs when many customers attempt to withdraw funds simultaneously, fearing insolvency.

Monetary Systems and Standards

• Greenbacks were paper currency used in the U.S. during the Civil War.
• The gold standard ties paper money's value to a specific amount of gold.
• Central banks lend to other banks during financial distress, acting as a financial safety net.

Banking Operations

• Member banks are part of the Federal Reserve System, which manages U.S. monetary policy.
• Foreclosure refers to the process where property is seized from borrowers failing to repay loans.

Money Supply and Liquidity

• The money supply encompasses all money circulating within the U.S. economy.
• Liquidity indicates how easily an asset can be converted into cash.

Types of Deposits and Funds

• Demand deposits are funds in checking accounts accessible at any time.
• Money market mutual funds pool contributions from individuals to invest in short-term securities.

Banking Practices

• Fractional reserve banking keeps a portion of deposits available while lending out the rest.
• A default occurs when a borrower does not repay a loan.

Loans and Credit

• Mortgages are specialized loans for purchasing real estate.
• Credit cards allow consumers to buy goods/services with a promise to repay later.
• Interest is the cost incurred for borrowing money, while the principal is the initial loan amount.
• Debit cards enable users to withdraw funds directly from their bank accounts.
• Creditors are individuals or entities to whom money is owed.