Chapter 11 - The Monetary System Flashcards
Medium of Exchange
A medium of exchange is an item that buyers give to sellers when they want to purchase goods and services.
Money
Money is the set of assets in an economy that people regularly use to buy goods and services from other people.
Unit of Account
A unit of account is the yardstick people use to post prices and record debts.
Store of Value
A store of value is an item that people can use to transfer purchasing power from the present to the future.
Liquidity
Liquidity is the ease with which an asset can be converted into the economy’s medium of exchange.
Commodity Money
Commodity money is money that takes the form of a commodity with intrinsic value.
Flat Money
Flat money is money without intrinsic value that is used as money because of government decree.
Currency
Currency refers to the paper bills and coins in the hands of the public.
Demand Deposits
Demand deposits are balances in bank accounts that depositors can access on demand by writing a check.
Federal Reserve (Fed)
The Federal Reserve is the central bank of the United States.
Central Bank
A central bank is an institution designed to oversee the banking system and regulate the quantity of money in the economy.
Money Supply
The money supply is the quantity of money available in the economy.
Monetary Policy
Monetary policy is the setting of the money supply by policymakers in the central bank.
Reserves
Reserves are deposits that banks have received but have not loaned out.
Fractional-Reserve Banking
Fractional-reserve banking is a banking system in which banks hold only a fraction of deposits as reserves.
Reserve Ratio
The reserve ratio is the fraction of deposits that banks hold as reserves.
Money Multiplier
The money multiplier is the amount of money the banking system generates with each dollar of reserves.
Bank Capital
Bank Capital is the resources a bank’s owners have put into the institution.
Leverage
Leverage is the use of borrowed money to supplement existing funds for purposes of investment.
Leverage Ratio
The leverage ratio is the ratio of assets to bank capital.
Capital Requirement
The capital requirement is a government regulation specifying a minimum amount of bank capital.
Open-Market Operations
Open-market operations are the purchase and sale of U.S. government bonds by the Fed.
Discount Rate
The discount rate is the interest rate on the loans that the Fed makes to banks.
Reserve Requirements
Reserve requirements are regulations on the minimum amount of reserves that banks must hold against deposits.
Federal Funds Rate
The federal funds rate is the interest rate at which banks make overnight loans to one another.
