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Tucker Watts' Flashcards for Ms. Bailey's class.

Medium of exchange

anything that is generally accepted as a standard of value and a measure of wealth in a particular country or region

Unit of account

a common unit for measuring the value of each good or service

Store of value

an item that people can use to transfer purchasing power from the present to the future


narrowest measure of the money supply that includes all coins and paper bills in circulation, traveler's checks, checking account balances, and balances in credit unions


All of M1 + less immediate (liquid) forms of money to include savings, money market mutual funds, and small denomination time deposits.

Legal Tender

Any kind of money that a creditor must, by law, accept in payment for debts


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.

Balance Sheet

a financial statement that reports assets, liabilities, and owner's equity on a specific date

Fractional Reserve Banking

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


the amount of money left over after all the costs of production have been paid


being in cash or easily convertible to cash

Federal Funds Rate

the interest rate at which banks make overnight loans to one another

Monetary Policy

policy that involves changing the rate of growth of the money supply in circulation in order to affect the cost and availability of credit

Open Market Operations

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

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

Easy Money

the economic condition in which credit is easy to secure

Tight Money

the economic condition in which credit is difficult to secure and interest rates are high

Prime Interest Rate

the interest rate on short-term loans that banks charge their commercial customers with high credit ratings

Velocity of Money

the average number of times each dollar in the money supply is used to purchase goods and services included in GDP

Cyclical Asymmetry

the idea that monetary policy may be more successful in slowing expansions and controlling inflation than in extracting the economy from severe recession

Inflation Targeting

conducting monetary policy so as to commit the central bank to achieving a publicly announced level of inflation

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