Macroeconomics Ch. 16 Definitions Flashcards
Medium Exchange
An item that buyers give to sellers when they want to purchase goods and services.
Unit of Account
The yardstick people use to post prices and record debts.
Store of Value
An item that people can use to transfer purchasing power from the present to the future.
Liquidity
The ease with which an asset can be converted into the economy’s medium of exchange.
Commodity Money
Money that takes the form of a commodity with intrinsic value (i.e. gold).
Fiat Money
Money without intrinsic value that is used as money by government decree. (i.e. Coins and Bills).
M1
Currency, Demand deposits, Traveler’s checks, Other checkable deposits.
M2
Savings deposits, Small time deposits, Money market mutual funds, A few minor categories, M1 itself.
Federal Reserve
Central bank of the United States
Central bank
An institution designed to oversee the banking system and regulate the quantity of money in the economy.
Money Supply
The quantity of money available in the economy.
Monetary Policy
The setting of the money supply by policymakers in the central bank.
Reserves
Deposits that banks have received but have not loaned out.
T-account
Simplified accounting statement showing changes in a bank’s assets and liabilities.
Fractional-reserve banking
A banking system in which banks can only hold a fraction of deposits as reserves.
Reserve Ratio
The fraction of deposits that banks hold as reserves.
Money multiplier
The amount of money the banking system generates which each dollar of reserves.
Bank capital
the resources a bank’s owners have put into the institution.
Leverage
The use of borrowed money to supplement existing funds for purposes of investment.
Leverage Ratio
The ratio of assets to bank capital.
Capital Requirement
A government regulation specifying a minimum amount of bank capital.
Open-market operations
The purchase and sale of US government bonds by the Fed.
Discount Rate
the interest rate on the loans that the Fed makes to banks.
Reserve Requirements
Regulations on the minimum amount of reserves that banks must hold against deposits.
Federal funds rate
The interest rate at which banks make overnight loans to one another.
