Money and Banking Essay

Submitted By Smarchitte1
Words: 457
Pages: 2

Part One:
1. Recession- a period of an economic contraction, sometimes limited in scope or duration
2. Business Cycle- a cycle or series of cycles of economic expansion and contractions.
3. Moral Hazard- lack of incentive to guard against risk where one is protected from its consequences.
4. Compare and contrast wealth and income: Income is money that you receive from other sources besides the hourly wage or salary. This includes interest, dividends, bonuses, property appreciation, etc. Wealth is a way to measure what your assets are worth. Such as your home, savings, checking accounts, investment portfolios. Wealth has also been equated to personal success, the quality of person relationships, etc.
5. Define three types of credit market instruments- fixed payment loan, coupon bond, and discount bond
7. Liquidity- the ability to convert an asset to cash quickly
8. “Run on a bank”- A situation that occurs when a large number of bank or other financial institution's customers withdraw their deposits simultaneously due to concerns about the bank's solvency.

Part Two:
1. The three elements of money is medium of exchange, unit of account, and store of value. In almost all market transactions in our economy, money in the form of currency or checks is a medium of exchange. It is used to pay for goods and services. The second role of money is to provide a unit of account. It is used to measure value in the economy. Money also functions as a store of value. It is a repository of purchasing power over time.
Commodity money is money made up of precious metals or another valuable commodity. Fiat money is paper currency decreed by a government as legal tender but not convertible into coins or precious metals.
Backed money is money distributed, normally as paper money that is assigned value based on valuable minerals tied to the paper money. The idea is that with backed