CH 15 Flashcards
Money
Anything that serves as a medium of exchange
Medium of exchange
Anything that is widely accepted as a means of payment
Barter
When goods are exchanged directly for other goods
Unit of account
A consistent means of measuring the value of things
Store of value
An item that holds value over time
Commodity money
Money that has value apart from its use as money
Fiat money
Money that some authority, generally a government, has ordered to be accepted as a medium of exchange
Currency
Paper money and coins
Checkable deposits
Balances in checking accounts
Check
A written order to bank to transfer ownership of a checkable deposit
Money supply
The total quantity of money in the economy at any one time
Liquidity
The ease with which an asset can be converted into currency
M1
The narrowest of the Fed’s money supply definitions that includes currency in circulation, checks le deposits, and traveler’s checks
M2
A broader measure of the money supply than M1 that includes M1 and other deposits
Financial intermediary
An institution that amassed funds from one group and makes them available to another
Bank
A financial intermediary that accepts deposits, makes loans, and offers checking accounts
Balance sheet
A financial statement showing assets, liabilities, and net worth
Assets
Anything of value
Liabilities
Obligations to other parties
Net worth
Assets less liabilities
Reserves
Bank assets held as cash in vaults and in deposits with the Federal Reserve
Fractional reserve banking system
System in which banks hold reserves whose value is less than the sum of claims outstanding on those reserves
Required reserves
The quantity of reserves banks are required to hold
Required reserve ratio
The ratio reserves to checkable deposits a bank must maintain
Excess reserves
Reserved in excess of the required level
Loaned up
When a banks excess reserves equal zero
Deposit multiplier
The ratio of the maximum possible change in checkable deposits to the change in reserves
Central bank
A bank that acts as a banker to the central government, acts as a banker to banks, acts as a regulator of banks, conducts monetary policy, and supports the stability of the financial system
Discount rate
The interest rate charged by the Fed when it lends reserves to banks
Federal funds market
A market in which banks lend reserves to one another
Federal funds rate
The interest rate charged when one bank lends reserves to another
Bond
A promise by the issuer of the bond to pay the owner of the bond a payment or a series of payments on a specific date or dates
Open-market operations
The buying and selling of federal government bonds by the Fed
