Unit 4 Vocab

Question 1

The price, calculated as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their savings for one year

Answer 1

Interest rate

Question 2

Savings and investment spending are always equal for the economy as a whole

Answer 2

Savings-investment spending identity

Question 3

The difference between tax revenue and government spending when tax revenue exceeds government spending

Answer 3

Budget surplus

Question 4

Difference between tax revenue and government spending when government spending exceeds tax revenue

Answer 4

Budget deficit

Question 5

The difference between tax revenue and government spending

Answer 5

Budget balance

Question 6

The sum of private savings and the budget balance, is the total amount of savings generated within the economy

Answer 6

National savings

Question 7

Equal to the total inflow of foreign funds minus the total outflow of domestic funds to other countries

Answer 7

Capital inflow

Question 8

The value of a household’s accumulated savings

Answer 8

Wealth

Question 9

A paper claim that entitles the buyer to future income from the seller

Answer 9

Financial asset

Question 10

A claim on tangible object that gives the owner the right to dispose of object as he or she wishes

Answer 10

Physical asset

Question 11

A requirement to pay money in the future

Answer 11

Liability

Question 12

The expenses of negotiating and executing a deal

Answer 12

Transaction costs

Question 13

Uncertainty about future outcomes that involve financial losses and gains

Answer 13

Financial risks

Question 14

An asset is ___ if it can be quickly converted into cash without much loss of value

Answer 14

Liquid

Question 15

An asset is ____ if it cannot be quickly converted into cash without much loss of value

Answer 15

Illiquid

Question 16

Lending agreement between an individual lender and an individual borrower

Answer 16

Loan

Question 17

An institution that transforms funds it gathers from many individuals into financial assets

Answer 17

Financial intermediary

Question 18

A claim on a bank that obliges the bank to give the depositor his or her cash when demanded

Answer 18

Bank deposit

Question 19

A financial intermediary that provides liquid assets in the form of bank deposits to lenders and uses those funds to finance borrowers’ investment spending on liquid assets

Answer 19

Bank

Question 20

Any asset that can easily be used to purchase goods and services

Answer 20

Money

Question 21

The total value of financial assets in the economy that are considered money

Answer 21

Money supply

Question 22

An asset that individuals acquire for the purpose of trading for goods and services rather than for their own consumption

Answer 22

Medium of exchange

Question 23

A means of holding purchasing power over time

Answer 23

Store of value

Question 24

A measure used to set prices and make economic calculations

Answer 24

Unit of accounts

Question 25

A good used as a medium of exchange that has intrinsic value in other uses

Answer 25

Commodity money

Question 26

A medium of exchange with no intrinsic value whose ultimate value is guaranteed by a promise that it can be converted into valuable goods

Answer 26

Commodity-backed money

Question 27

A medium of exchange whose value derives entirely from its official status as a means of payment

Answer 27

Fiat money

Question 28

An overall measure of the money supply

Answer 28

Monetary aggregate

Question 29

the _____ of some current amount of money is the amount to which it will grow as interest accumulates over a specified period of time

Answer 29

Future value

Question 30

The _____ of $1 realizes one year from now is $1 / (1 + r): the amount of money you must lend out today in order to have $1 in one year. It is the value to you today of $1 realized from now.

Answer 30

Present value

Question 31

The present value of current and future benefits minus the present value of current and future costs

Answer 31

Net present value

Question 32

The currency that banks hold in their values plus their deposits at the federal reserve

Answer 32

Bank reserves

Question 33

The fraction of bank deposits that a bank holds as reserves

Answer 33

Reserve ratio

Question 34

The smallest fraction of deposits that the Federal Reserve requires banks to hold

Answer 34

Required reserve ratio

Question 35

A phenomenon in which many of a bank’s depositors try to withdraw their funds due to fears of a bank failure

Answer 35

Bank run

Question 36

Rules set by the Federal Reserve that determine the required reserve ratio for banks

Answer 36

Reserve requirements

Question 37

A bank’s reserves over and above its required reserves

Answer 37

Excess reserves

Question 38

The sum of currency in circulation and bank reserves

Answer 38

Monetary base

Question 39

The ratio of the money supply to the monetary base. It indicates the total number of dollars created in the banking system by each $1 addition to the monetary base

Answer 39

Money multiplier