Unit 7: Money, Banking & Monetary Policy

Front

What is money?

Back

Money is anything people accept in exchange for goods, services, and payment for debts.

Front

Define liquidity.

Back

Liquidity refers to the ease with which an asset can be converted into cash without affecting its market value.

Front

What are the functions of money?

Back

1. Medium of exchange 2. Unit of account 3. Store of value 4. Standard for deferred payment.

Front

What are the characteristics of money?

Back

1. Portable 2. Acceptable 3. Scarce 4. Stable 5. Difficult to counterfeit 6. Divisible.

Front

What is fiat money?

Back

Fiat money is money that is decreed by the government and has little value as a commodity.

Front

What is commodity money?

Back

Commodity money is an object used as a medium of exchange that has substantial value in alternative uses.

Front

What is the difference between narrow and broad definitions of money?

Back

Narrow definitions include items that can be spent directly (like cash), while broad definitions include items that can be converted into cash but are not directly spendable (like savings accounts).

Front

What is M0 in the money supply?

Back

M0 is the currency in the hands of the public plus reserves held on behalf of commercial banks.

Front

What does M1 include?

Back

M1 includes notes and coins outside of the banking system plus current account balances held for transactions.

Front

What is the role of the Central Bank?

Back

The Central Bank controls the money supply and implements monetary policy.