Monetary System (Block 3) Flashcards
Final (Chapter 16)
Medium of exchange
Money facilitates transactions by serving as a widely accepted intermediary.
Unit of account
Money provides a common measure of value for goods and services.
Store of value
Money retains its purchasing power over time, allowing for saving and deferred consumption.
Standard of deferred payment
Money enables contracts to be written for future transactions, where payments can be made in the future.
M1
Narrow money supply including currency, demand deposits, and other liquid assets.
M2
Broader money supply including M1 plus savings deposits, small-denomination time deposits, and money market mutual funds.
Reserve requirement
The percentage of deposits that banks must hold as reserves.
Reserve ratio
The ratio of reserves to deposits held by banks.
Money multiplier
The factor by which a change in reserves will change the money supply, calculated as 1 divided by the reserve ratio.
Open market operations
The buying and selling of government securities to control the money supply.
Discount rate/discount loan
The interest rate at which banks can borrow directly from the Federal Reserve.
Reserve requirement
The percentage of deposits that banks must hold as reserves.
Interest on reserves
The interest rate paid by the Federal Reserve on reserves held by banks.
Federal fund rate
The interest rate at which banks lend reserves to each other overnight.
