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Ch. 16 The Monetary System


undefined, object
copy deck
exchange of one good or service for another
unit of account
the yardstick people use to post prices and record debts
store of value
an item that people can use to transfer purchasing power from the present to the future
the ease with which an asset can be converted into the economy's medium of exchange
commodity money
money that takes the form of a commodity with intrinsic value
total of all stores of value (including money and nonmonetary assets
intrinsic value
an item that would have value even if it were not used as money
eg: gold, cigarettes, land?
gold standard
when an economy uses gold as money
fiat money
money without intrinsic value that is used as money because of gov't decree
an order/ decree
the paper bills and coins in the hands of the public
money stock
quantity of money circulating in the economy
demand deposits
balances in bank accounts that depositors can access on demand by writing a check
Federal Reserve (FED)
the central bank of the US
Central Bank
an institution designed to oversee the banking system and regulate the quantity of money in the economy
money supply
the quantity of money available in the economy
monetary policy
the setting of the money supply by policymakers in the central bank
Federal Open Market Committee (FOMC)
FED Committee in charge of monetary policies
-12 members (5 are pres)
Open Market Operations (OMOs)
the purchase and sale of US gov't bonds
Fractional-Reserve Banking
a banking system in which banks hold only a fraction of deposits as reserves
Reserve Ratio
the fraction of deposits that banks hold as reserves
100-percent reserve banking
when the bank does not loan out any of the deposits
deposits that banks have received but have not loaned out
simplified accounting statement that shows changes in bank's assets and liability
reserve requirement
minimum amount of reserves that banks must hold
excess reserves
reserves above the legal minimum
money multiplier
the amount of money the banking system generates with each dollar of reserves
open-market operations
the purchase and sale of US gov't bonds by the Fed
discount rate
the interest rate on the loans that the Fed makes to banks
bank run
when depositors suspect that a bank may go bankrupt and "run" to the bank to withdraw their deposits

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