24 terms

Mac ch.13

1. medium of exchange
2. store of value
3. unit of account
fiat money
money that has neither intrinsic value or the backing of a commodity with intrinsic value; currency is an example
liquid asset
an asset that can be easily converted to money without loss of value
M1 money supply
the sum of currency in circulation, checkable deposits maintained in depository institutions, and travelers checks
medium of exchange made of metal of paper
demand deposits
non-interest earning deposits that can be either withdrawn or made payable on demand to a third party.
ex. currency
Other checkable deposits
interest earning deposits that are also available for checking
M2 money supply
equal M1 plus savings deposits, time deposits (accounts of less than $100,00) held in depository institutions, and money market mutual fund shares.
Money market mutual funds
interest earning accounts that pool depositors funds and invest them in highly liquid short-term securities. Because these securities can be quickly converted to cash, depositors are permitted to write checks (which reduce their shareholdings) against their accounts
Depository Institutions
businesses that accept checking and savings deposits and use a portion of them to extend loans and make investments. Banks, savings and loan associations and credit unions are examples.
Bank reserves
vault cash plus deposits of banks with Federal Reserve banks
Required reserves
the minimum amount that a bank is required to keep on had to back up deposits
Required reserve ratio
the ratio of reserves relative that banks are required to maintain in their vaults
Excess reserves
actual reserves that exceed the legal requirement
Potential deposit expansion multiplier
maximum potential increase in the money supply as new reserves are injected
- a federally chartered corporation that insures the deposits held by commercial banks, savings and loans, and credit unions
Federal Open Market Committee (FOMC)
a committee of the Federal Reserve that establishes Fed policy with regard to the buying and selling of government
the primary mechanism used to control the money supply. It is composed of the seven members of the Board of Governors and the twelve district bank presidents of the Fed
open market operations
buying and selling of U.S. securities and other financial assets in the open market by the Fed
discount rate
the interest rate the Fed charges banks for short-term loans
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
Federal funds rate
the interest rate in the federal funds market
Term Auction Facility (TAF)
newly established procedure used by the fed to auction credit for an eighty four day period to depository institutions willing to bid the highest interest rates for the funds
Monetary base
the sum of currency in circulation plus bank reserves (vault cash and reserves with the Fed; it reflects the purchases of financial assets and extension of loans by the Fed