1. bank capital
    the resources a bank's owners have put into the institution
  2. capital requirement
    a government regulation specifying a minimum amount of bank capital
  3. central bank
    an institution designed to oversee the banking system and regulate the quantity of money in the economy
  4. commodity money
    money that takes the form of a commodity with intrinsic value

    Ex: gold, silver, copper, peppercorns
  5. currency
    the paper bills and coins in the hands of the public
  6. demand deposits
    balances in bank accounts that depositors can access on demand by writing a check
  7. discount rate
    the interest rate on the loans that the fed makes to banks
  8. federal funds rate
    the interest rate at which banks make overnight loans to one another
  9. Federal Reserve
    (Fed) the central bank of the United States
  10. fiat money
    money without intrinsic value that is used as money because of government decree
  11. fractional-reserve banking
    a banking system in which banks hold only a fraction of deposits as reserves
  12. leverage
    the use of borrowed money to supplement existing funds for purposes of investment
  13. leverage ratio
    the ratio of assets to bank capital
  14. liquidity
    the ease with which an asset can be converted into the economy's medium of exchange

    1. Cash is the most liquid asset because it be trade for another good or service the fasted.

    2. Checking accounts and ATM debit cards are the second form of Liquidity 

    3. Houses are examples of illiquid: Can only covert into cash by selling it.
  15. medium of exchange
    an item that buyers give to sellers when they want to purchase goods and services
  16. monetary policy
    the setting of the money supply by policymakers in the central bank

    • 1. Aim to move economy to full employment
    • 2. Increase output to the economy potential 
    • 3. Maintain price stability
  17. money
    the set of assets in an economy that people regularly use to buy goods and services from other people

    without money trade would require barter the exchange of one good for a service for another
  18. money multiplier
    the amount of money the banking system generates with each dollar of reserves

    Formula = 1/required reserve ratio
  19. money supply
    the quantity of money available in the economy
  20. open-market operations
    the purchase and sale of U.S. government bonds by the fed

    Fed Committee meet every 6 weeks
  21. reserve ratio
    the fraction of deposits that banks hold as reserves. The rate is set by the Feds
  22. reserve requirements
    regulations on the minimum amount of reserves that banks must hold against deposits

    Required Reserves = required reserve ratio x total deposits

  23. reserves
    deposits that banks have received but have not loaned out

    most hold as cash in vault or deposit at the feds
  24. store of value
    an item that people can use to transfer purchasing power from the present to the future
  25. unit of account
    the yardstick people use to post prices and record debts

  26. Two Kinds of Money
    Intrinsic Value: Things like gold or precious metals

    Fiat Money: or Token Money: Has no intrinsic value. It is used as money because of goverment decree. (Money/Dollar Bills). Most countries use Fiat Money for trade.
  27. Monetary Aggregates
    M1, M2, and M3
  28. M1
    Currency in Circulation (Money) + Demand deposits (Bank deposits that can be taking out)
  29. M2
    =M1 + savings deposit + small time deposits (100,000 or Less) + money market mutual funds
  30. M3
    =M2 + Large Denomination time deposits
  31. Wealth or Net Worth
    is the total value of assets minus the total value of Liabilities
  32. Depository institutions
    Financial Intermediaries that serve three purposes 

    1. Accept deposit

    2. Make Loans 

    3. Earn a profit
  33. Bank Liabilties & Assets
    1. Primary liability of depository institutions= deposit in checking accounts/Checkable deposit

    • 2. Assets = Vault Cash at the Bank and deposits at the Feds
  34. Clearing House
    an institution that transfer money between banks.

    In the US the Feds serve as the clearing house.
  35. T-Accounts
    Simplified accounting statement that shows bank assets and liabilities.
  36. excess reserves
    Excess reserves= Total Reserves - Required reserves. 

    The maximum amount of loans an individual bank can create is equaled to its excess reserves
  37. expansionary Monetary Policies
    Action by the Central bank that increases the money supply and reduce the interest to stimulate aggregate demand
  38. Contraction Monetary Policies (tight money)
    Actions that decrease the money supply and increase the interest rate to reduce aggregate demand
  39. Term Auction Facility (TAF)
    Banks bid to borrow money from the fed. Funds goes to the highest bidder willing to pay the higher interest rate.
  40. Open-market operations effects
    • When Feds buy US Bonds and Securities it
    • increases the money supply and reduce the interest to stimulate aggregate demand

    • When Feds Sales US Bonds and Securities it
    • decrease the money supply and increase the interest rate to reduce aggregate demand
Card Set
Flash cards from Principles Of Macroeconomics 6th Edition Mankiw