Unit 4 Flashcards
What is the definition of Interest Rate?
The cost of borrowing money or the return on savings, expressed as a percentage.
Define Financial Asset.
An asset that represents a claim to future cash flows or ownership rights.
What does Wealth refer to?
The total value of all assets owned by an individual or entity, minus liabilities.
What is a Liability?
A financial obligation or debt owed to another party.
Define Liquidity.
The ease with which an asset can be converted into cash without affecting its market price.
What is a Bond?
A fixed income instrument representing a loan made by an investor to a borrower.
Define Stock.
A share in the ownership of a company, representing a claim on part of the company’s assets and earnings.
What is a Bank Deposit?
Money placed into a banking institution for safekeeping.
What is Money?
A medium of exchange that facilitates transactions.
Medium of Exchange
Any item that is widely acceptable in exchange for goods and services. One of the three functions of money
Store of Value
An asset, commodity, or currency that can be saved, retrieved, and exchanged in the future without deteriorating in value. One of the three functions of money.
Unit of Account
Something that can be used to value goods and services, record debts, and make calculations. One of the three functions of money.
What is Commodity-Backed Money?
Money that is backed by a physical commodity, such as gold or silver.
Define Fiat Money.
Money that has value by government decree and is not backed by a physical commodity.
What is the Monetary Base?
The total amount of a country’s currency in circulation or held in reserves.
What is a Central Bank?
The national bank that provides financial and banking services for its country’s government and commercial banking system.
What is a T-Account?
A simplified accounting statement that shows the balance of debits and credits.
Define Fractional Reserve Banking System.
A banking system in which banks hold only a fraction of deposits as reserves.
What are Bank Reserves?
Funds that a bank holds in cash or on deposit with a central bank.
What is Required Reserve Ratio?
The percentage of deposits that banks are required to hold as reserves.
What are Required Reserves?
The minimum amount of reserves a bank must hold against deposits.
What are Excess Reserves?
Reserves held by a bank that exceed the required minimum.
What does Inflation Targeting refer to?
A monetary policy strategy aimed at maintaining a specific inflation rate.
What is the Federal Funds Rate?
The interest rate at which depository institutions lend reserve balances to other depository institutions overnight.
What are Limited Reserves?
a situation where banks have few reserves.
What are Ample Reserves?
A condition where banks have more reserves than they are required to hold.
What does Interest on Reserve Balances mean?
Interest paid by the central bank on reserves held by commercial banks.
Define Crowding Out.
A situation where increased government spending leads to a reduction in private sector investment.
