assets that people are generally willing to accept in exchange for goods and services or for payment of debts
commodity money
a good used as money that also has value independent of its use of money
fiat money
money that is authorized by a central bank and does not have to be exchanged by the central bank for commodity money
M1
narrowest definition for money supply; the sum of currency in circulation, checking account deposits in bans, and holdings in travelers checks
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
reserves
deposits that a bank keeps as cash in its vault or on deposit with the Fed Res
required reserves
reserves that a bank is legally required to hold, based on checking account deposits
required reserve ratio
minimum fraction of deposits banks are required by law to reserve
excess reserves
reserves that banks hold over and above legal requirement
simple deposit multiplier
ratio of the amount of deposits created by banks to the amount of new reserves; 1/RR
fractional reserve banking sysytem
a banking system in which banks keep less than 100 percent of deposits as reserves
bank run
a situation in which many depositers simultaneously decide to withdraw money from a bank
bank panic
a situation when many banks experience bank runs at the same time
discount loans
loans the federal reserve makes to banks
discount rate
the interest rate the federal reserve charges on discount loans
federal open market committee
the federal reserve committee responsible for open market operations and managing the money supply in the united states
open market operations
the buying and selling of treasury securities by the federal reserve in order to control the money supply
security
a financial asset-such as a stock or bond-that can be bought and sold in a financial market
securitization
the process of transforming loans or other financial assets into securities
functions of money
medium of exchange (no double coincidence of wants)
measure of value (prices)
store of value
standard of deferred payment (debt)
desireable characteristics of money to assist in function