Chapter 14 Flashcards
money
assets that people are generally willing to accept in exchange for goods and services or for payments of debts
asset
anything of value owned by a person or firm
commodity money
a good used as money that also have value independent of its money
federal reserve
the central bank of the US
fiat money
money, such as paper currency, that is authorized by a central bank or governmental body and that does not have to be exchanged by the central bank for gold or some other commodity money
M1
the narrow definition of the money supply: the sum of currency in circulation, checking account deposits in banks, and holdings of travelers checks
M2
a broader definition of the money supply: it included M1 plus savings account deposits, small-denomination time deposits, balances in money market deposit accounts in banks, and non institutional money market fund shares
reserves
deposits that a bank keeps as cash in its vault or on deposit with the federal reserve
required reserves
reserves that a bank is legally required to hold, based on its checking account deposits
required reserve ratio
the minimum fraction of deposits banks are required by law to keep as reserves
excess reserves
reserves that banks hold over the legal requirement
simple deposit multiplier
the ratio of the amount of deposits created by banks to the amount of new reserves
fractional reserve banking
a banking system in which banks keep less than 100 percent of deposits as reserves
bank run
a situation in which many depositors simultaneously decide to withdraw money from a bank
bank panic
a situation in which many banks experience runs at the same time
