Chapter 04 Flashcards
Money
the stock of assets that can be readily used to make transactions.
Store of Value
A way of transferring purchasing power from the present to the future; one of the functions of money.
Unit of Account
the measure in which prices and other accounting records are recorded; one of the functions of money.
Fiat Money
Money that is not intrinsically useful and is valued only because it is used as money.
Commodity Money
Money that is intrinsically useful and would be valued even if it did not serve as money.
Gold Standard
A monetary system in which gold serves as money or in which all money is convertible into gold at a fixed rate.
Money Supply
the amount of money available, usually as determined by the central bank and the banking system.
Monetary Policy
the central bank’s choice regarding the supply of money.
Central Bank
the institution that is responsible for the conduct of monetary policy, such as the Federal Reserve in the United States.
Federal Reserve (the Fed)
the Central Bank of the United States.
Open-market operations
the purchase or sale of government bonds by the central bank for the purpose of increasing or decreasing the money supply.
Currency
the sum of outstanding paper money and coins.
Demand Deposits
Assets that are held in banks and can be used on demand to make transactions, such as checking accounts.
Reserves
the money that banks have received from depositors but have not used to make loans.
100-percent-reserve banking
A system in which banks keep all deposits on reserve.
Balance Sheet
an accounting statement that shows assets and liabilities.
Fractional-reserve banking
A system in which banks keep only some of their deposits on reserve
Financial Intermediation
the process by which assets are allocated from those individuals that wish to save some of their income for future consumption to those individuals and firms who wish to borrow to buy investment goods for future production.
Bank Capital
the resources the bank owners have put into the institution
Leverage
the use of borrowed money to supplement existing funds for purposes of investment.
Capital requirement
A minimum amount of bank capital mandated by regulators.
Monetary base
the sum of currency and bank reserves; also called high-powered money.
Reserve-deposit ratio
the ratio of amount of reserves banks choose to hold to the amount of demand deposits they have.
Currency-deposit ratio
the ratio of the amount of currency that people choose to hold to the amount of demand deposits they hold at banks.
Money multiplier
the increase in the money supply resulting from a one-dollar increase in the monetary base.
High-powered money
the sum of currency and bank reserves; also called the monetary base.
Discount rate
the interest rate that the Fed charges when it makes loans to banks.
Reserve requirements
Regulations imposed on banks by the Central bank that specify a minimum reserve-deposit ratio.
Excess reserves
Reserves held by banks above the amount mandated by reserve requirements.
Interest on reserves
the central bank’s policy of paying banks and interest rate for the deposits that they hold as reserves.
