ECON Chapters 11+12
Terms
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- Money
- Any good that is widely accepted for purposes of exchange and in the repayment of debt.
- Barter
- exchanging goods and services for other goods and services without the use of money.
- Medium of exchange
- Anything that is generally acceptable in exchange for goods and services. A function of money.
- Unit of account
- A common measure in which relative values are expressed. A function of money.
- Store of Value
- The ability of an item to hold value over time. A function of money.
- Double coincidence of wants
- In a barter economy, a requirement that must be met before a trade can be made.
- M1
- Includes currency held outside banks, checkable deposits and traveler's checks.
- Currency
- Coins and paper money.
- Federal Reserve Notes
- Paper money issued by the fed.
- Checkable Deposits
- Deposits on which checks can be written.
- M2
- M1, savings deposits, small-denomination time deposits, money market mutual funds.
- Savings Deposit
- An interest-earning account at a commercial bank or thrift institution. Checks cannot be written from this account.
- Money Market Deposit Account
- An interest-earning account that has a minimum required balance and offer limited check-writing privileges.
- Time Deposit
- An interest-earning deposite with a specified maturity date. Subject to penalities for early withdrawal.
- Money Market Mutual Fund
- An interest-earning account at a mutual fund company. Minumum balance is required and has limited check-writing privileges.
- Fractional Reserve Banking
- A banking arrangement that allows banks to hold reserves equal to only a fraction of their deposit liabilities.
- Federal Reserve System
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-The Fed
-The central bank of the U.S. - Reserves
- The sum of bank deposits at the Fed and vault cash.
- Required Reserve Ratio
-
-r
-A percentage of each dollar deposited that must be held on reserve (at the Fed or in the bank's vault). - Required Reserves
- The minimum amount of reserves a bank must hold against its checkable deposits as mandated by the Fed.
- Excess Reserves
- Any reserves held beyond the required amount. The difference between total reserves and required reserves.
- T-Account
- A simplified balance sheet that shows the changes in a bank's assets and liabilities.
- Simple deposit multiplier
- 1/r
- Cash leakage
- Occurs when funds are held as currency instead of being deposited into a checking account.
- Monetary policy
- Changes in the money supploy, or in the rate of change of the money supply, to achiever particular macroeconomic goals.
- Open Market Purchase
- The buying of government securities by the Fed.
- Open Market Sale
- The selling of government securities by the Fed.
- Reserve Requirement
- The rule that specifies the amount of reserves a bank must hold to back up deposits.
- Federal Funds Market
- A market where banks lend reserves to one another, usually for short periods.
- Federal Funds Rate
- The interest rate in the federal funds market
- Discount Rate
- The interest rate the Fed charges depository institutions that borrow reserves from it.
- What happens as a result of an open market purchase/sale?
- Money supply rises/falls.
- What happens as a result of raising/lowering the required reserve ratio?
- Money supply rises/falls
- What happens as a result of lowering/raising the discount rate?
- Money supply rises/falls.