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Macroeconomics > Chapter 14 > Flashcards

Chapter 14 Flashcards

1
Q

Money

A

An asset that can easily be used to purchase goods and services

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2
Q

Currency in circulation

A

Cash held by the public

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3
Q

Checkable bank deposits

A

Bank accounts on which people can write checks

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4
Q

Money supply

A

The total value of financial assets in the economy that are considered to be money

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5
Q

Three main roles of money in an economy:

A
  1. Medium of exchange
  2. Store of Value
  3. Unit of account
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6
Q

Medium of exchange

A

An asset that individuals acquire for the purpose of trading goods and services rather than for their own consumption

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7
Q

Store of value

A

A means of holding purchasing power over time

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8
Q

Unit of activity

A

A measure used to set prices and make economic calculations

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9
Q

Commodity money

A

A good used as a medium of exchange that has intrinsic value in other uses

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10
Q

Commodity-backed money

A

A medium of exchange with no intrinsic value whose ultimate value is guranteed by a promise that it can be converted into valuable goods

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11
Q

Fiat money

A

A medium of exchange whose value derives entirely from its official status as a means of payment

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12
Q

Monetary aggregate

A

Overall measure of the money supply

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13
Q

Near-moneys

A

Financial assets that can’t be directly used as a medium of exchange but can readily converted into cash or checkable bank deposits

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14
Q

Bank reserves

A

The currency banks hold in their vaults plus their deposits at the Federal Reserve.

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15
Q

T-account

A

a tool for analyzing a business’s financial position by showing, in a single table, the business’s assets (on the left) and liabilities (on the right).

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16
Q

Reserve ratio

A

The fraction of bank deposits that a bank holds as reserves

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17
Q

Bank failure

A

The bank would be unable to pay off its depositors in full

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18
Q

Bank run

A

A phenomenon in which many of a bank’s depositors try to withdraw their funds due to fears of bank failure

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19
Q

Discount window

A

A source of cash when it’s needed

Banks have access to this to protect from bank runs

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20
Q

Deposit insurance

A

Guarantees that a bank’s depositors will be paid even if the bank can’t come up with the funds, up to a maximum amount per account

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21
Q

Bank’s capital

A

The excess of a bank’s assets over its bank deposits and other liabilities

22
Q

Reserve Requirements

A

Rules set by the Federal Reserve that determine the minimum reserve ratio for banks

10% for checkable bank deposits

23
Q

Discount window

A

An arrangement in which the Federal Reserve stands ready to lend money to banks in trouble

24
Q

Four features of banks to protect against Bank Runs:

A

Deposit Insurance

Capital Requirements

Resere Requirements

Discount Window

25
Q

Excess reserves

A

A bank’s reserves over and above its required reserves

26
Q

Increase in checkable bank deposits from $1,000 in excess reserves =

A

$1,000/rr

27
Q

Monetary base

A

The sum of currency in circulation and bank reserves

The quantity the monetary authorities control

28
Q

Checkable bank deposits

A

A part of the money supply because they are available for spending, aren’t part of the monetary base

29
Q

Money supply consists of:

A

currency in circulation

checkable or near checkable bank deposits

30
Q

Why is the money supply larger than the monetary base?

A

Because each dollar of bank reserves backs several dollars of bank deposits

31
Q

Money multiplier

A

The ratio of the money supply to the monetary base

32
Q

Central bank

A

An institution that oversees and regulates the banking system and controls the monetary base

33
Q

The Federal Reserve Bank of New York plays a special role:

A

It carries out open-market operations

*usually the main tool of monetary policy

34
Q

federal funds market

A

Allows banks that fall short of the reserve requirement to borrow funds from banks with excess reserves

35
Q

federal funds rate

A

The interest rate determine in the federal funds market

36
Q

Three main policy tools of the FED

A

Reserve requirements

Discount rate

Open-market operations

37
Q

Banks in need of reserves can borrow from the FED itself via the _____________

A

discount window

38
Q

Discount rate

A

The rate of interest the Fed charges on loans to banks

39
Q

Open-market operation

A

A purchase or sale of government debt by the FED

40
Q

commercial bank

A

banks that mainly make business loans, as opposed to home loans

41
Q

Eurozone

A

the group of countries that have adopted the euro as their currency

42
Q

commercial banks

A

Accept deposits and are covered by deposit insurance

43
Q

Investment bank

A

Trades in financial assets and is not covered by deposit insurance

44
Q

Savings and loan (thrift)

A

Another type of deposit-taking bank, usually specialized in issuing home loans

45
Q

leverage

A

A financial insitution engages in leverage when it finances its investments with borrowed funds

46
Q

Balance sheet effect

A

The reduction in a firm’s net worth due to falling asset prices

47
Q

Vicious cycle of deleveraging

A

Takes place when asset sales to cover losses produce negative balance sheet effects on other firms and force creditors to call in their loans, forcin sales of more assets and causing further declines in asset prices

48
Q

subprime lending

A

Lending to home-buyers who don’t meet the usual criteria for being able to afford their payments

49
Q

securitization

A

A pool of loans is assembled and shares of that pool are sold to investors

50
Q

TED spread

A

Shoows the difference between the interest rate on three-month loans that banks make to each other and the interest rate the federal government pays on three-month loans

51
Q
A

Macroeconomics (26 decks)

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