economics 25

  1. money
    assets that people are generally willing to accept in exchange for goods and services or for payment of debts
  2. commodity money
    a good used as money that also has value independent of its use of money
  3. fiat money
    money that is authorized by a central bank and does not have to be exchanged by the central bank for commodity money
  4. M1
    narrowest definition for money supply; the sum of currency in circulation, checking account deposits in bans, and holdings in travelers checks
  5. M2
    broader definition of money supply; M1 plus savings account balances, small-denomination time deposits, balances in money market deposit accounts in banks, and noninstitutional market funds shares
  6. reserves
    deposits that a bank keeps as cash in its vault or on deposit with the Fed Res
  7. required reserves
    reserves that a bank is legally required to hold, based on checking account deposits
  8. required reserve ratio
    minimum fraction of deposits banks are required by law to reserve
  9. excess reserves
    reserves that banks hold over and above legal requirement
  10. simple deposit multiplier
    ratio of the amount of deposits created by banks to the amount of new reserves; 1/RR
  11. fractional reserve banking sysytem
    a banking system in which banks keep less than 100 percent of deposits as reserves
  12. bank run
    a situation in which many depositers simultaneously decide to withdraw money from a bank
  13. bank panic
    a situation when many banks experience bank runs at the same time
  14. discount loans
    loans the federal reserve makes to banks
  15. discount rate
    the interest rate the federal reserve charges on discount loans
  16. federal open market committee
    the federal reserve committee responsible for open market operations and managing the money supply in the united states
  17. open market operations
    the buying and selling of treasury securities by the federal reserve in order to control the money supply
  18. security
    a financial asset-such as a stock or bond-that can be bought and sold in a financial market
  19. securitization
    the process of transforming loans or other financial assets into securities
  20. functions of money
    • medium of exchange (no double coincidence of wants)
    • measure of value (prices)
    • store of value
    • standard of deferred payment (debt)
  21. desireable characteristics of money to assist in function
    • durability
    • divisibility
    • homogeneity
    • portability
    • optimal scarcity
  22. national debt
    • gvmt borrows money for purchases MEU
    • repay loan with tax revenue MEU
    • print money MEE (monetizing the debt)
Card Set
economics 25
money, banks, federal reserve