Chapter 29: The Monetary System Flashcards
Barter
Trading goods and services directly for goods and services
Money
The set of assets generally accepted in trade for goods and services
Medium of exchange
The function of money when used to purchase goods and services
Unit of account
The function of money when used as a yardstick to post prices and record debts
Store of value
The function of money when used to transfer purchasing power to the future
Liquidity
The ease with which an asset can be converted into the economy’s medium of exchange
Commodity money
Money in the form of a commodity with intrinsic value
Fiat money
Money without intrinsic value
Currency
Paper bills and coins in the hands of the public
Demand deposits
Balances in bank accounts that can be accessed on demand by check
Federal Reserve (Fed)
The central bank of the United States
Central bank
An institution designed to regulate the banking system and money supply
Money supply
The quantity of money in the economy
Monetary policy
Decisions by the central bank concerning the money supply
Federal Open Market Committee
The monetary policy committee within the Federal
Reserve
Reserves
Deposits that banks have received but have not lent out
Fractional-reserve banking
A banking system in which banks hold only a fraction of deposits as reserves
Reserve ratio
The fraction of deposits held as reserves
Money multiplier
The amount of money the banking system generates from each dollar of reserves
Open-market operations
The purchase and sale of U.S. government bonds by the Fed
Reserve requirements
The minimum legal percent of deposits that banks must hold as reserves
Discount rate
The interest rate CB charges on loans to banks
Federal funds rate
The interest rate at which banks make overnight loans to one another
Intrinsic value
The value is independent of its use as money
Money stock
The quantity of money available in the economy
Check clearing
The movement of a check from the depository institution at which it was deposited back to the institution on which it was written; the movement of funds in the opposite direction and the corresponding credit and debit to the involved accounts
Check
a written order to a bank to pay a stated sum from the drawer’s account.
Lender of last resort
Offers loans to banks or other eligible institutions that are experiencing financial difficulty (run out of money) or are considered highly risky or near collapse
Issues currency notes (fiat money)
monopoly in issuance of currency
Monetary Base
the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank’s reserves
Central bank
an institution that oversees the banking system and regulates the money supply
Excess Reserves
to get more confident that they will not run short of
cash
reserve ratio
fraction of deposits that banks hold as reserves
T-account
a simplified accounting statement that shows a bank’s assets and liabilities.
