economics 25

assets that people are generally willing to accept in exchange for goods and services or for payment of debts

a good used as money that also has value independent of its use of money

money that is authorized by a central bank and does not have to be exchanged by the central bank for commodity money

narrowest definition for money supply; the sum of currency in circulation, checking account deposits in bans, and holdings in travelers checks

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

deposits that a bank keeps as cash in its vault or on deposit with the Fed Res

reserves that a bank is legally required to hold, based on checking account deposits

minimum fraction of deposits banks are required by law to reserve

reserves that banks hold over and above legal requirement

ratio of the amount of deposits created by banks to the amount of new reserves; 1/RR

a banking system in which banks keep less than 100 percent of deposits as reserves

a situation in which many depositers simultaneously decide to withdraw money from a bank

a situation when many banks experience bank runs at the same time

loans the federal reserve makes to banks

the interest rate the federal reserve charges on discount loans

the federal reserve committee responsible for open market operations and managing the money supply in the united states

the buying and selling of treasury securities by the federal reserve in order to control the money supply

a financial asset-such as a stock or bond-that can be bought and sold in a financial market

the process of transforming loans or other financial assets into securities

• medium of exchange (no double coincidence of wants)
• measure of value (prices)
• store of value
• standard of deferred payment (debt)

• durability
• divisibility
• homogeneity
• portability
• optimal scarcity

• gvmt borrows money for purchases MEU
• repay loan with tax revenue MEU
• print money MEE (monetizing the debt)