| Term | Definition |
|---|
| Barter | Trade of one good for another without the use of money. |
| Double Coincidence of Wants | Makes barter difficult because both parties to a trade must be accepting of items offered in trade. |
| Money | Anything generally accepted in exchange for goods and services that acts as a medium of exhange, a measure of value, and a store of value. |
| Desirable Characteristics of Money | Durable, portable, divisible, recognizable, stable, and identical (homogenous.) |
| Functions of Money | Medium of exhange, a measure of value, and a store of value. |
| Medium of Exchange | Generally accepted as a means of payment - pays for goods and services. Using money to buy your groceries. |
| Measure of Value | A tool by which to measure the "worth" of an item. A 2-karat "diamond" costing $275 is probably not a "real" diamond. |
| Store of Value | A way to hold wealth for the future. Saving your money for use at a later date. |
| Gresham's Law | "Bad money drives out good money." As money of different quality circulates, people tend to trade away inferior quality money and keep superior quality money. |
| Fiduciary Money | Exchangeable for full value in gold or silver. |
| Fractional Reserve Money | Money that is only partially backed by gold or silver. |
| Fiat Money | Money that is deemed legal or tender by the government, and it is not based on or convertible into a commodity. |
| Legal Tender | Declared by law for the retirement of all debt, either public or private. |
| Value of Money | Value of money is reflected in its purchasing power. |
| Currency | Coins and paper money. |
| Federal Reserve Notes | Paper money used in the United States that is issued by the Federal Reserve System. |
| Liquidity | The degree to which an assest is easliy converted into or exhanged for money. |
| Money Supply | The supply of M1 - currency, checking account funds, and traveler's checks. These items are counted as money because they are used as the means of payment for purchases. |
| M1 | Most immediate form of money which includes currency, demand deposits, and traveler's checks. |
| M2 | All of M1 + less immediate (liquid) forms of money to include savings, money market mutual funds, and small denomination time deposits. |
| M3 | All of M1 + M2 + large denomination time deposits and large-denomination repurchase agreements. |
| Demand Deposits | Another name for checkable accounts. |
| Near Money | U S Savings Bonds and Corporate Bonds are financial assets or near monies. |
| Credit Cards | Instruments of debt - credit cards are NOT money. |
| Velocity of Money | The average number of times a dollar is used to purchase final goods and services during a year. It is equal to GDP divided by the stock of money. |
| Equation of Exchange | MV = PQ, where M is the money supply, V is the velocity of money, P is the price level, and Q is the quantity of output of goods and services produced in an economy. |
| Quantity Theory of Money | P = MV/Q A theory that hypothesizes that a change in the money supply will cause a proportional change in the price level because velocity and real output are unaffected by the quantity of money. |
| Transactions Demand for Money | The amount of money demanded by houses and businesses to conduct their transactions - the buying and selling of goods and services. |
| Fractional Reserve Banking | A banking system allowing depositors immediate access to demand deposits, while allowing banks to keep only a fraction of total deposits on reserve. |
| Balance Sheet | A financial statement that summarizes a firm's financial position on a particular date in terms of its assets, liabilities, and owners' equity. |
| Legal Reserve Requirement | The percentage of demand deposits banks must hold on reserve, either in the form of vault cash or on deposit with a Federal Reserve Bank. |
| Financial Intermediaries | Institutions that "connect" borrowers and lenders by accepting funds from lenders and loaning funds to borrowers |
| Potential Money Multiplier | The increase in the money supply that is potentially created by a change in demand deposits. The formula is m = 1/LRR, where m = (money multiplier) and LRR = (Legal Reserve Requirement). |
| Excess Reserves | Reserves in excess of required reserves. Excess reserves equal total reserves minus required reserves. |
| Federal Deposit Insurance Corporation | FDIC - A federal guarantee of savings bank deposits. The FDIC on Friday formally approved the increased insurance limit of $250,000 per regular account that was part of the financial rescue legislation enacted last week. (October 10, 2008) |
| Federal Reserve System | An independent agency in the federal executive branch. Established by the Federal Reserve Act of 1913, the Federal Reserve System (FED) is the central bank of the United States. One of the most powerful agencies in the government, it makes and administers policy for national credit and monetary policies. The Fed supervises and regulates bank functions across the country, thus maintaining a sound and stable banking industry, able to deal with a wide range of domestic and international financial demands |
| Federal Reserve Act of 1913 | On December 23, 1913, the Federal Reserve System, which serves as the nation's central bank, was created by an act of Congress. |
| Primary Purpose of the FED | To ensure full employment, stable prices, and economic growth by conducting monetary policy. |
| State Chartered Bank | A commercial bank which receives its charter or license to operate from an individual state. The bank must operate under said state laws. May join the FED, but is not required by law to do so. |
| Nationally Chartered Bank | A commercial bank which receives its charter or license to operate from the comptroller of the currency and is subject to federal law, as well as the laws of the state in which it operates. Required by law to join the FED. |
| Board of Governors | The seven member group, appointed by the President and approved by the Senate, which, sets general policies for the FED and member banks to follow, regulates certain operations of state-chartered member banks, and conducts some aspects of monetary policy. |
| FOMC | The Federal Open Market Committee is the most powerful committee of the FED, because it makes the decisions that affect the economy as a whole by manipulating the money supply. |
| District Banks | Twelve banks which make up the second tier of the FED's structure. South Carolina belongs to the 5th Federal Reserve District, which is located in Richmond, Va. |
| Brank Banks | Twenty five banks operating under the guidance of the 12 district banks. Charlotte, NC is home to a Federal Reserve branch bank. |
| Ben Bernanke | Current chairman of the Federal Reserve System. Replaced Alan Greenspan in 2006. |
| Monetary Policy | Actions taken by the Board of Governors of the Federal Reserve System to influence the interest rates and the supply of money available in the economy. |
| Tools of Monetary Policy | Discount Rate, Legal Reserve Requirement, Open Market Operations |
| Discount Rate | The rate of interest set by the Federal Reserve that member banks are charged when they borrow money through the Federal Reserve System. |
| Open Market Operations | The method by which the Open Market Committee of the Federal Reserve System buys and sells government securities, to help finance government operations and to loosen or tighten the total amount of money circulating in the economy (these actions will add or subract from the reserves of the nation's commercial banking system.) |
| Federal Funds Market | A loanable funds market in which banks seeking additional reserves borrow short-term funds (generally for seven days or less) from banks with excess reserves. The interest rate in this market is called the federal funds rate. |
| Federal Funds Rate | The interest rate at which a bank lends immediately available funds to another bank overnight in order to meet the borrowing bank's reserve requirements |
| Tight Monetary Policy | Monetary policy that makes credit expensive in an effort to slow the economy. (Takes money out of circulation.) Achieved by increasing the discount rate, raising the legal reserve requirement, and/or selling government securities. Applicable during times of inflation. |
| Easy Monetary Policy | Monetary policy that makes access to credit easier in an effort to stimulate the economy. (Puts money into circulation.) Achieved by lowering the discount rate, lowering the legal reserve requirement, and/or buying government securities. Applicable during times of unemployment. |
| Countercyclical Monetary Policy | Policy directions given by the FED to moderate swings in the business cycle. |
| Margin Requirement | The percentage of the price an investor must pay in cash to purchase a stock, convertible bond, or other security. Maximum percentage of the cost of a stock that can be borrowed using the stock itself as collateral. |
| Public Good | A good provided by the public (government.) They are non-exclusionary – cannot exclude anyone from use, even non-payers and are non-divisible – do not belong to individuals, not produced on a "per unit" basis. (National defense, city street lights) |
| Merit Good | Goods for which the market demand and supply is inadequate. There is not enough of these goods provided in the a market. (Higher education, National Public Radio) |
| Private Good | A good privided by private firms (or individuals.) They are exclusionary – cannot be had without payment and are divisible – do belong to individuals, are produced on a "per unit" basis. (Goods you buy for your own personal use - a Coke or a jacket) |
| Welfare | A series of economic and social programs that provide regular assistance (either cash or in-kind) from the government based on need. |
| In-Kind | Government assistance in the form of goods and services. |
| Food Stamp Program | A government assistance program that provides a means for the poor to receive good and some related items. |
| Medicaid | A public assistance, health care program, administered through Social Security, designed to provide health care for poor and/or disabled Americans. Medicaid is funded by both the federal government and state governments. |
| Medicare | A health care program, administered through Social Security, designed to provide health care for the elderly (defined as 65 years and older.) |
| Social Security | Established in 1935 as a social insurance program, subject to rules of eligibility, that provides benefits to the elderly, disabled, and their dependents. It is not designed to provide a source of income for a reasonable standard of living when a person retires. |
| Unemployment Insurance | A joint state-federal program under which state-administered funds pay a weekly benefit for a limited time to eligible workers when they are involuntarily umemployed. |
| Tax System | A way to shift resources from the private sector to the public sector (government). Government commandeers (takes) money rather than resources. |
| Regressive Tax | A tax whose impact is inversely related to level of income. Poor people pay a higher percentage of their total income than do richer people. All sales taxes are regressive. |
| Proportional Tax | A tax by which the government takes the same share of income from everyone, rich and poor alike. |
| Progressive Tax | A tax whose impact is directly related to level of income. Poor people pay a lower percentage of their total income than do richer people. Federal income tax brackets are progressive taxes. |
| Corporate Income Tax | A tax levied on the net income (accounting profit) of corporations. |
| Property Tax | A tax levied on the value of physical assets - either real or personal properties. |
| Real Property | Real estate - land, homes, etc. |
| Personal Property | Movable physical assets - cars, boats, etc. |
| Sales Tax | A tax levied on value of purchases, usually based as a percentage of total value. |
| Customs Duty | A sales tax levied on foreign goods. |
| Excise Tax | A tax levied on a particular good or service - federal excise tax on gasoline. |
| Estate Tax | A tax levied on the assets, or property, of a person who has died. Current exemption is up to $600,000. |
| Public Debt | All of the money borrowed by the government that has not been repaid, plus the accrued interest on that money. (The accumlation of years of deficit spending.) Also called the national debt of federal debt. |
| Savings Bonds | A nonmarketable Treasury bond; most commonly held form of public debt. |
| External Debt | Public debt held by foreign individuals and foreign nations. |
| Internal Debt | Public debt held by Americans. |
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