Economics Chapter 10 and 16

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money

anything that serves a a medium of exchange, a unit of account and a store of value

medium of exchange

anything that is used to determine value during the exchange of goods and services

barter

the direct exchange of one set of goods or services for another

unit of account

a means for comparing the values of goods and services

store of value

something that keeps its value if it is stored rather than spent

currency

coins and paper bills used as money

commodity money

objects that have value in and of themselves and that are also used as money ex. salt, cattle, gems

representative money

objects that have value because the holder can exchange them for something else of value ex. IOUs

specie

coined money usually gold or silver, used to back paper money

fiat money

objects that have value because the government has decreed that they are acceptable means to pay debts ex. dollar bills

bank

an institution for receiving, keeping, and lending money

national bank

a bank chartered by the federal government

bank run

a widespread panic in which many people try to redeem their paper money at the same time

greenback

a paper currency issued during the Civil War

gold standard

a monetary system in which paper money and coins had the value of certain amounts of gold

central bank

a bank that can lend to other banks in time of need

member bank

a bank that belongs to the Federal Reserve System

foreclosure

the seizure of property from borrowers who are unable to repay their loans

money supply

all the money availiable in the US economy

liquidity

the ability to be used as or directly converted into cash

demand deposit

money in a checking account that can be paid out on demand or at any time

money market mutual fund

a fund that pools money from small savers to purchase short-term government and coporate securities

fractional reserve banking

a banking system that keeps only a fraction of its funds on hand and lends out the remainder

default

failing to pay back a loan

mortgage

a specific type of loan that is used to buy real estate

credit card

a card entitling its owner to buy goods and services based on the owner's promise to pay for those goods and services

interest

the price paid for the use of borrowed money

principal

the amount of money borrowed

debit card

a card used to withdraw money from a bank account

creditor

a person or instituiton to whom money is owed

monetary policy

the actions that the Federal Reserve System takes to influence the level of real GDP and the rate of inflation in the economy

reserves

deposits taht a bank keeps readily available as opposed to lending them out

reserve requirements

the amount of reserves that banks are required to keep on hand

check clearing

the process by which banks record whose account gives up money and whose account receives money when a customer writes a check

bank holding company

a company that owns more than one bank

federal funds rate

the interset rate that banks charge each other for loans

discount rate

the interest rate that the Federal Reserves charges commercial banks for loans

money creation

the process by which money enters into circulation

required reserves ratio

the fraction of deposits that banks are required to keep in reserve

money multiplier formula

a formula (cash deposit/RRR) used to determine how much new money can be created with each demand deposit and added to the money supply

excess reserves

bank reserves greater than the amount required by the Federal Reserve

prime rate

the rate of interest that banks charge on short-term loans to their best customers

open market operations

buying and selling of government securities in order to alter the supply of money

monetarism

the belief that the money supply is the most important factor in macroeconomic performance

easy money policy

a monetary policy that increases the money supply

tight money policy

a monetary policy that reduces the money supply

inside lag

the time it takes to implement monetary policy

outside lag

the time it takes for monetary policy to have an effect

commercial banks

national chartered banks and state chartered banks

credit unions

formed around something that people have in common ex. farmers teachers students

savings and loans bank

originally chartered to build homes; same function as commercial banks

FOMC

Federal Open Market Committee

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