EGC1 Chapters 31-33

Medium of Exchange
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Terms in this set (53)
near-moniesfinancial assets the most important of which are noncheckable savings accounts, time deposits and US short term securities and savings bondsM2a more broadly defined money supply equal to M1savings accounta deposit in a commercial bank or thrift institution on whcih interest payments are receivedmoney market deposit account (MMDA)bank and thrift provided interest bearing accounts that contain a variety of short term securitites: minimum balance requirementstime depositsan intrest earning deposit in a commercial bank or thrift institution that the depositer can withdrawl without penaltymoney market mutual fund (MMMF)intrest bearing accounts offered by investment companieslegal tendera nations national currencyfederal reserve systemthe US central bank consisting of the board of governors of the federal reserve and the 12 federal reserve banks, which control the lending activity of the nation's banks and thriftsboard of governorsthe seven member group that supervises and controls the money and banking system of the USfederal reserve banks12 banks chartered by the US government to control money supply and perform other functionsfederal open market committee (FOMC)12 member group that determines the purchase and sale policies of the federal reserve bankssubprime mortgage loanshigh intrest rate loans to home buyers with above average credit riskmortgage-backed securitiesbonds that represent claims to all or part of the monthly mortgage payments from the pools of mortgage loans made by leaders to borrowers to help them purchase residential propertysecuritizationthe process of aggregating many individual financial debts such as mortgages and student loansmoral hazardthe possiblity that individuals will change there behavior as the result of a contract or agreementtroubled asset relief program (TARP)2008 federal government program that authorized us treasury to loan up to 700 billion to critical financial institutionsfinancial services industrythe broad category of firms that provide financial products and services to help households and businesses earn intrest recieve dividends obtain capital gainswall street reform and consumer protection acta law that gave authority to the federal reserve to regulate all large financial institutionsfractional reserve banking systema system in which commercial banks and thrift institutions hold less than 100% of their checkable deposit liabilitites as required reservesbalance sheeta statement of the assets, liabilities, and net worth of a firm or individual at some given timevault cashthe currency a bank has in its vault and cash drawersrequired reservesthe funds that banks and thrifts must deposit with the federal reserve bank to meet the legal reserve requirements . a fixed percentage of the bank's or thrifts checkable depositsreserve ratiothe fraction of checkable deposits that a bank must hold as reserves in a federal reserve bank or in its own bank vaultexcess reservesthe amount by which a bank's or thrifts acutal reserves exceed its required reservesactual reservesthe funds that a bank has on deposit at the federal reserve bankfederal funds ratethe interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reservesmonetary multipliera central banks changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment and economic growth.monetary policythe rule suggested by monetarism, money supply should be expanded each year at the same annual rate as the potential rate of growthinterestthe payment made for the use of moneytransactions demand for moneythe amount of money people want to hold for use as a medium of exchange , varies directly with nominal GDPasset demand for moneythe amount of money people want to hold as a store of value, varies with the interest ratetotal demand for moneythe sum of transactions demand for money and the asseet demand for moneyopen-market operationsthe buying and selling of us government securities by the federal reserve banks for purposes carrying out monetary policyreserve ratiothe fraction of checkable deposits that a bank must hold as reserves in a federal reserve bank or in its own bank vaultdiscount ratethe intrest rate that the federal reserve bank charge on the loans they make to commercial banksterm auction facilitythe moneytary policy procedure used by the federal reserve in which commercial banks anonymously bid to obtain loans being made available by the fed as a way to expand reserves in the banking systemfederal funds ratethe intrest rate banks and other depository institutions charge one another on overnight loansexpansionary monetary policyFRS actions to increase money supply, lower intrest rates, and expand real GDP an easy money policyprime interest ratebenchmark intrest rate that banks use as a reference point for a wide range of loans to businesses and individualsrestrictive monetary policyFRS actions to reduce money supply, increase intrest rates and reduce inflations a tight money policytaylor rulea modern monetary rule proposed by economist John Taylorcyclical asymmetrythe idea that monetary policy may be more successful in slowing expansions and controlling inflation than in extracting the economy from severe recessionliquidity trapa situation in a severe recession in whcih the feds injection of additional reserves into the banking system has little or no additional positive impact on lending, borrowing investment or aggregate demand