money that has neither intrinsic value or the backing of a commodity with intrinsic value; currency is an example
M1 money supply
the sum of currency in circulation, checkable deposits maintained in depository institutions, and travelers checks
non-interest earning deposits that can be either withdrawn or made payable on demand to a third party.
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
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.
Required reserve ratio
the ratio of reserves relative that banks are required to maintain in their vaults
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
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
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