Money and Banking

Money and Banking

• If a central bank lowers reserve requirements from 20% to 10%, the money multiplier and the money supply in the economy will both increase.
• Certificates of deposit and time deposits require depositors to commit funds for a set time in exchange for a higher interest rate.
• Money serves as a medium of exchange, unit of account, and store of value.
• A valid criticism of money as a store of value is the annual inflationary loss of buying power.
• A stealth bank with $600 million in deposits, $30 million in reserves, $80 million in government bonds, and $400 million in loans has total assets of $510 million.
• Traveler's checks are included in the aggregate amount of M1 money currently in circulation.
• Banks diversify loans to protect against unexpectedly high loan defaults and the risk of an asset-liability time mismatch.
• A stealth bank with deposits of $600 million, reserves of $30 million, government bonds worth $80 million, and loans with a current market value of $400 million has total liabilities of $600 million.
• Barter is a completely inadequate mechanism for trying to coordinate trades in a modern advanced economy.
• Credit cards serve as a medium of exchange because of their wide acceptance for goods and services.
• The quantity of money in an economy and the quantity of credit for loans are inextricably intertwined.
• If Bill provides plumbing services for Alice in exchange for incorporating his business, a double coincidence of wants is satisfied.
• In macroeconomics, an asset-liability time mismatch describes a situation where a bank's short-term liabilities can be withdrawn while its assets are being repaid long-term.
• Bonds are financial instruments used by corporations and governments to borrow money from financial investors, promising repayment with interest.
• The reserve ratio is the proportion of deposits banks must hold as reserves, not loaned out or invested in bonds.
• When Brent uses his credit card, the money to pay the retailer initially comes from the credit card company's M1 funds.
• In uncertain economic times, owning gold preserves economic value for future spending or consumption.
• The secondary loan market is where loans are bought and sold.
• A stealth bank with deposits of $700 million, reserves of $20 million, government bonds worth $350 million, and loans worth $600 million has a net worth of $270 million.
• If mollusk shells were used as payment in modern markets, they would function as a medium of exchange.
• Lance's house, which he bought for $175,000 in 2003 and sold for $325,000 in 2006, served as a store of value during the time Lance owned it.
• In an economy with inflation, money loses buying power each year, but remains money.
• Money market funds pool deposits from many investors and invest them safely in short-term government bonds.
• if there is $10 million in money and the reserve rate is 5%, the money multiplier is 20.
• Demand deposits are classified in the M1 category of the money supply.
• When Sarah uses her debit card online, the retailer gets paid from Sarah's M1 funds.
• Demand deposits describe a checking account.
• The process of banks making loans is closely linked to the creation of money.
• A stealth bank with deposits of $700 million, reserves of $20 million, government bonds of $350 million, and loans of $600 million has total assets worth $970 million.
• A stealth bank has deposits of $300 million. It holds reserves of $20 million and has purchased government bonds worth $300 million. The bank's loans, if sold at current market value, would be worth $600 million. Stealth bank's net worth equals $620 million.
• Money is omitted in a barter transaction.
• A stealth bank with deposits of $350 million, reserves of $30 million, government bonds worth $70 million, and loans at a market value of $400 million has total assets equal to $500 million.
• M1 is a narrow definition of the money supply that includes currency.
• If loans become less available, sectors that depend on borrowed money, like business investment, home construction, and car manufacturing, are severely impacted.
• A unit of account describes the common way market values are measured in an economy.
• If Evelyn uses her debit card, the retailer gets paid from her M1 funds.
• Demand deposits are a form of deposits held in banks, available for cash withdrawals, debit card transactions, and writing checks.