CoreMicroEconomics_CH_12 Flashcards
Barter
The direct exchange of goods and services for other goods and services. Pg. 260
M1
The narrowest definition of money; includes currency (coins and paper money), demand deposits (checks), and other accounts that have check_writing or debit capabilities, such as stock market and money market accounts. The most liquid instruments that might serve as money. Pg. 261
Federal funds rate
The interest rate financial institutions charge each other for overnight loans used as reserves. Pg. 275
M2
A broader definition of money that includes “near monies” that are not as liquid as cash, including deposits in savings accounts, money market accounts, and money market mutual fund accounts. Pg. 262
Federal Reserve System
The central bank of the United States. Pg. 271
Medium of exchange
Money is a medium of exchange because goods and services are sold for money, then the money is used to purchase other goods and services. Pg. 260
Financial intermediaries
Financial firms (banks, mutual funds, insurance companies, etc.) that acquire funds from savers and then lend these funds to borrowers (consumers, firms, and government). Pg. 266
Money
Anything that is accepted in exchange for other goods and services or for the payment of debt. Pg. 259
Liquidity
How quickly, easily, and reliably an asset can be converted into cash. Pg. 261
Discount rate
The interest rate the Federal Reserve charges commercial banks and other depository institutions to borrow reserves from a regional Federal Reserve Bank. Pg. 275
Federal Open Market Committee (FOMC)
This twelve_member committee is composed of members of the Board of Governors of the Fed and selected presidents of the regional Federal Reserve Banks; it oversees open market operations (the buying and selling of government securities), the main tool of monetary policy. Pg. 274
Fiat money
Money without intrinsic value but nonetheless accepted as money because the government has decreed it to be money. Pg. 260
Fractional reserve banking system
To prevent bank runs (all depositors demanding their deposits in cash at the same time), a portion of bank deposits must be held as vault cash, or else in an account with the regional Federal Reserve Bank. Pg. 269
Money multiplier
Measures the potential or maximum amount the money supply can increase (or decrease) when new deposits enter (exit) the system and is defined as 1 divided by the reserve requirement. The actual money multiplier will be less, since some banks hold excess reserves.
Open market operations
The buying and selling of U.S. government securities, usually Treasury bonds, to adjust reserves in the banking system. Pg. 275
Reserve requirements
The required ratio of funds that commercial banks and other depository institutions must hold in reserve against deposits. Pg. 274
Store of value
The function that enables people to save the money they earn today and use it to buy the goods and services they want tomorrow. Pg. 261
Unit of account
Money provides a yardstick for measuring and comparing the values of a wide variety of goods and services. It eliminates the problem of double coincidence of wants associated with barter. Pg. 260
