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Macroeconomics Ch. 11


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real sector
the market for the production and exchagne of goods and services
financial sector
the market for the creation and exchange of financial assets such as money, stocks, and bonds
interest rate
equilibrates supply and demand in the financial sector; the price paid for the use of a financial asset
financial assets
assets such as stocks or bonds
promises to pay a certain amount plus interest in the future
1. highly liquid financial asset that's generally accepted in exchange for other goods (medium of exchange)
2. is used as a reference in valuing other goods (unit of account)
3. a store as wealth
easily changeable into another asset or good
Federal Reserve Bank (Fed) aka U.S. central bank
the U.S. central bank whose liabilities (Federal Reserve notes) serve as cash in the United States;
the bank that has the right to issue notes (IOUs)
Fed notes
money, Fed's IOUs
a financial institution whose primary function is accepting deposits for,and lending money to, individuals and firms
the narrowest of all definitions; consists of currency in the hands of the public, checking account balances, and traveler's checks
made up of M1 plus savings deposits, small-denomination time deposits, and money market mutual fund shares;
the measure of money often most closely correlated with the price level and economic activity
the broadest measure of money and includes almost all short-term assets (maturity less than 1 yr)
small-denomination time deposits
aka certificates of deposit (CDs)
asset management
how a bank handles its loans and other assets
liability management
how a bank attracts deposits and what it pays for them
currency and deposits a bank keeps on hand or at the Fed or central bank, enough to manage the normal cash infows and outfolows
reserve ratio
the ratio of reserves to total deposits (sum of required reserve ratio and excess reserve ratio)
required reserve ratio
the ratio banks are required to hold by the Fed
excess reserve ratio
additional percentage that banks choose to hold
simple money multiplier
(r = reserve ratio)
the measure of the amount of money ultimately created per dollar deposited in the banking system, when people hold no currency
approximate real-world money multiplier
(c = ratio of money people hold in currency to the money they hold as deposits)
Federal Deposit Insurance Corporation
spread (of a bank)
the difference between their cots and the interest they pay out, and the interest they take in minus bad loans

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