Download Economics - Spring Branch ISD

Economics
Chapter 10
Money & Banking
I.
Section three, Banking Today:
1. Money that people can gain access to easily and immediately to pay for goods and
services is called M1 money.
2. Something has liquidity if it has the ability to be used as, or directly converted
into, cash.
3. True or false;
M2 money is made up of currency held by the public, that is, all currency held
outside of bank vaults.
4. A good example of a demand deposit would be a checking account.
5. True or false;
Since they are not really currency, traveler’s checks are not considered M1 money.
6. Funds that cannot be used as cash directly but can be converted into cash fairly
easily are called M2 money.
7. True or false;
Deposits in savings accounts and deposits in money market mutual funds are
considered M2 money.
8. List the four most common functions of any bank.
A. Savings accounts
B. Checking accounts
C. Money market accounts
D. Certificates of deposits
9. True or false;
Money market accounts and certificates of deposits are special kinds of savings
accounts that pay a higher rate of
interest than do savings and checking
accounts.
10. True or false;
Funds placed in a CD, cannot be removed until the end of a certain time period,
such as one or two years.
11. The first bankers in history were goldsmiths.
12. A banking system that keeps only a fraction of funds on hand and lends out the
remainder is called fractional reserve banking.
13. Default means failure to pay back a loan.
14. A mortgage is a specific type of loan that is used to buy real estate.
15. Interest is the price paid for the use of borrowing money.
16. The amount of a loan borrowed is called the principal.
17. True or false;
Simple interest is interest paid on a loan principal and accumulated interest.
18. True or false;
The largest source of income for banks is the fees they charge for overdraft
protection.
19. Commercial banks provide the most services and play the largest role in the
economy of any type of bank.
20. True or false;
About ½ of all commercial banks are national banks and are part of the Federal
Reserve System.
21. Savings and Loan Associations were originally chartered to lend money for
building homes during the mid-1800s.
22. Mutual savings banks were banks owned by the depositors themselves, who
shared in any profits.
23. In 1972, the Consumer’s Savings Bank of Worcester, Massachusetts, introduced a
Negotiable Order of Withdrawal account, what is this type of account?
A type of checking account that pays interest.
24. Credit Unions are cooperative lending associations for particular groups, usually
employees of a specific firm or government agency.
25. True or false;
Finance companies make installment loans to consumers, usually to purchase a
car.
26. What is a PIN used for?
To authorize financial transactions
27. Automatic Clearing Houses (ACHs) allow customers to pay bills without
writing checks. The funds are simply transferred from the customers’ account to
the creditors’ account.
28. True or false;
Stored value cards, or smart cards, are similar to debit cards. They have an
embedded magnetic stripe or computer
chip with account balance information.