Unit 4 Vocab Flashcards
The price, calculated as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their savings for one year
Interest rate
Savings and investment spending are always equal for the economy as a whole
Savings-investment spending identity
The difference between tax revenue and government spending when tax revenue exceeds government spending
Budget surplus
Difference between tax revenue and government spending when government spending exceeds tax revenue
Budget deficit
The difference between tax revenue and government spending
Budget balance
The sum of private savings and the budget balance, is the total amount of savings generated within the economy
National savings
Equal to the total inflow of foreign funds minus the total outflow of domestic funds to other countries
Capital inflow
The value of a household’s accumulated savings
Wealth
A paper claim that entitles the buyer to future income from the seller
Financial asset
A claim on tangible object that gives the owner the right to dispose of object as he or she wishes
Physical asset
A requirement to pay money in the future
Liability
The expenses of negotiating and executing a deal
Transaction costs
Uncertainty about future outcomes that involve financial losses and gains
Financial risks
An asset is ___ if it can be quickly converted into cash without much loss of value
Liquid
An asset is ____ if it cannot be quickly converted into cash without much loss of value
Illiquid
Lending agreement between an individual lender and an individual borrower
Loan
An institution that transforms funds it gathers from many individuals into financial assets
Financial intermediary
A claim on a bank that obliges the bank to give the depositor his or her cash when demanded
Bank deposit
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
Bank
Any asset that can easily be used to purchase goods and services
Money
The total value of financial assets in the economy that are considered money
Money supply
An asset that individuals acquire for the purpose of trading for goods and services rather than for their own consumption
Medium of exchange
A means of holding purchasing power over time
Store of value
A measure used to set prices and make economic calculations
Unit of accounts
A good used as a medium of exchange that has intrinsic value in other uses
Commodity money
A medium of exchange with no intrinsic value whose ultimate value is guaranteed by a promise that it can be converted into valuable goods
Commodity-backed money
A medium of exchange whose value derives entirely from its official status as a means of payment
Fiat money
An overall measure of the money supply
Monetary aggregate
the _____ of some current amount of money is the amount to which it will grow as interest accumulates over a specified period of time
Future value
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.
Present value
The present value of current and future benefits minus the present value of current and future costs
Net present value
The currency that banks hold in their values plus their deposits at the federal reserve
Bank reserves
The fraction of bank deposits that a bank holds as reserves
Reserve ratio
The smallest fraction of deposits that the Federal Reserve requires banks to hold
Required reserve ratio
A phenomenon in which many of a bank’s depositors try to withdraw their funds due to fears of a bank failure
Bank run
Rules set by the Federal Reserve that determine the required reserve ratio for banks
Reserve requirements
A bank’s reserves over and above its required reserves
Excess reserves
The sum of currency in circulation and bank reserves
Monetary base
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
Money multiplier
