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72 Cards in this Set

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Board of Governors
the seven-member group that supervises and controls the money and banking system of the United States; the Board of Governors of the Federal Reserve system; the Federal Reserve Board
checkable deposits
Any deposit in a commercial bank or thrift institution against which a check may be written
commercial banks
a firm that engages in the business of banking (accepts deposits, offers checking accounts, and makes loans)
electronic payments
purchases made by transferring funds electronically. Examples: Fed wire transfers, automated clearinghouse transactions (ACHs), payments via the PayPal system, and payments made through stored-value cards.
Federal Open Market Committee (FOMC)
the 12-member group that determines the purchase and sale policies of the fed banks in the market for U.S. government securities.
Federal Reserve Banks
the 12 banks chartered by the U.S. government to control the money supply and perform other functions. (See central bank, quasi-public bank, and bankers' bank)
Federal Reserve Notes
Paper money issued by the fed banks
Federal Reserve System
the U.S. central bank, consisting of the Board of Governors of the Federal Reserve and the 12 Federal Reserve Banks, which controls the lending activity of the nation's banks and thrifts and thus the money supply; commonly referred to as the "Fed."
financial services industry
the broad category of firms that provide financial products and services to help households and businesses earn interest, receive dividends, obtain capital gains, and insure against losses, and plan for retirement. The industry includes commercial banks, thrift institutions, insurance companies, mutual fund companies, pension funds, and securities firms.
legal tender
a legal destination of a nation's official currency (bills and coins). Payment of debts must be accepted in this monetary unit, but creditors can specify the form of payment, for example, "cash only" or "check or credit card only."
M1
the most narrowly defined money supply, equal to currency in the hands of the public and the checkable deposits of commercial banks and thrift institutions
M2
a more broadly defined money supply, equal to M1 plus noncheckable savings accounts (including money market deposit accounts), small time deposits (deposits of less than $100,000), and individual money market mutual fund balances
medium of exchange
any item sellers generally accept and buyers generally use to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter
money market deposit account (MMDA)
bank-and thrift-provided interest-bearing accounts that contain a variety of short-term securities; such accounts have minimum balance requirements and limits on the frequency of withdrawals.
money market mutual fund (MMMF)
interest-bearing accounts offered by investment companies, which pool depositors' funds for the purchase of short-term securities. Depositors can write checks in minimum amounts or more against their accounts.
MZM
a definition of the money supply that includes monetary balances immediately available at zero cost to households and businesses for making transactions. MZM (money zero maturity) equals M2 minus small time deposits plus money market mutual fund balances owned by businesses.
near-monies
financial assets, the most important of which are noncheckable savings accounts, time deposits, and U.S. short-term securities and savings bonds, which are not a medium of exchange but can be readily converted to money.
savings account
a deposit in a commercial bank or thrift institution on which interest payments are received; generally used for saving rather than daily transactions; a component of the M2 money supply
store of value
an asset set aside for future use; one of the three function of money
thrift institutions
a savings and loan association, mutual savings bank, or credit union
time deposits
an interest-earning deposit in a commercial bank or thrift institution that the depositor can withdraw without penalty after the end of a specified period
token money
value of all coins in circulation, where the intrinsic value, or the value of the metal contained in the coin itself , is less than the face value of the coin
unit of account
a standard unit in which prices can be stated and the value of goods and services can be compared; one of the three functions of money
actual reserves
the funds that a bank has on deposit at the Federal Reserve Bank of its district (plus its vault cash)
balance sheet
a statement of the assets, liabilities, and net worth of a firm or individual at some given time
excess reserves
the amount by which a bank's or thrift's actual reserves exceed its required reserves; actual reserves minus required reserves
Federal funds rate
The interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reserves
Fractional reserve banking system
a reserve requirement that is less than 100 percent of the checkable-deposit liabilities of a commercial bank or thrift institution
monetary multiplier
the multiple of its excess reserves by which the banking system can expand checkable deposits and thus the money supply by making new loans (or buying securities); equal to 1 divided by the reserve requirement
required reserves
the specified minimum percentage of its checkable deposits that a bank or thrift must keep on deposit at the fed bank in its district or hold as vault cash
reserve ratio
the ratio of the required reserves the commercial bank must keep to the bank's own outstanding checkable-deposit liabilities; (commercial bank's required reserves) divided by (commercial bank's checkable-deposit liabilities)
vault cash
the currency a bank has in its vault and cash drawers
asset demand
the amount of money people want to hold as a store of value; this amount varies inversely with the interest rate
cyclical asymmetry
the idea that monetary policy may be more successful in slowing expansions and controlling inflation than in extracting the economy from severe recessions
???(rate) discount ratio
The interest rate that the fed banks charge on the loans they make to commercial banks and thrift institutions
expansionary monetary policy
The fed system actions to increase the money supply, lower interest rates, and expand real GDP; an easy money policy
Federal funds rate
The interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reserves
inflation targeting
the annual statement by a central bank of a goal for a specific range of inflation in a future year, coupled with monetary policy designed to achieve the goal.
interest
the payment made for the use of money (of borrowed funds).
Monetary policy
a central bank's changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment, and economic growth
open-market operations
the buying and selling of U.S. government securities by the red banks for purposes of carrying out monetary policy
prime interest rate
the benchmark interest rate that banks use as a reference point for a wide range of loans to businesses and individuals
reserve ratio
the ratio of the required reserves the commercial bank must keep to the bank's own outstanding checkable-deposit liabilities; (commercial bank's required reserves) divided by (commercial bank's checkable-deposit liabilities)
restrictive monetary policy
the Fed actions to reduce the money supply, increase interest rates, and reduce inflation; a tight money policy
Taylor rule
a modern monetary rule proposed by economist John Taylor that would stipulate exactly how much the fed should change interest rates in response to divergences if real GDP from potential GDP and divergences of actual rates of inflation from a target rate of inflation
total demand for money
the sum of the transactions demand for money and the asset demand for money
transactions demand
the amount of money (or g and s) by a government to a household or firm for which the payer receives no good or service directly in return
aggregate supply shocks
sudden, large changes in resource costs that shift an economy's aggregate supply curve
disinflation
a reduction in the rate of inflation
Laffer Curve
a curve relating government tax rates and tax revenues and on which a particular tax rate (between zero and 100 percent) maximizes tax revenues
long run
a period sufficiently long for nominal wages and other input prices to change in response to a change in the nation's price level
long-run vertical Phillips Curve
the Philip's Curve after all nominal was have adjusted to changes in the rat of inflation; a line emanating straight upward at the economy's natural rate of unemployment
Phillips curve
a curve showing the relationship between the unemployment rate (on the horizontal axis) and the annual rate of increase in the price level (on the vertical axis)
short run
a period in which nominal wages and other input prices do not change in response to a change in the price level
stagflation
inflation accompanied by stagnation in the rate of growth of output and an increase in unemployment in the economy; simultaneous increases in the inflation rate and the unemployment rate.
supply-side economics
a view of macroeconomics that emphasizes the role of costs and aggregate supply in explaining inflation, unemployment, and economic growth
demand factor
the increase in the level of aggregate demand that brings about the economic growth made possible by an increase in the production potential of the economy
economic growth
1) an outward shift in the production possibilities curve that results from an increase in the resource supplies or quality or an improvement in technology; 2) an increase of real output (gross domestic product) or real output per capita.
economies of scale
Reductions in the average total cost of producing a product as the firm expands the size of plant (its output) in the long run; the economies of mass production
efficiency factor
the capacity of an economy to combine resources effectively to achieve growth of real output that the supply factors (of growth) make possible.
growth accounting
the bookkeeping of the supply-side elements such as productivity and labor inputs that contribute to changes in real GDP over some specific time period
human capital
the knowledge and skills that make a person productive
increasing returns
an increase in a firm's output by a larger percentage than the percentage increase in its inputs
information technology
new and more efficient methods of delivering and receiving information through use of computers, fax machines, wireless phones, and the Internet.
infrastructure
the capital goods usually provides by the public sector for the use of its citizens and firms (for example, highways, bridges, transit systems, wastewater treatment facilities, municipal water systems, and airports).
labor productivity
total output divided by the quantity of labor employed to produce it; the average product of labor or output per hour of work
labor-force participation rate
the percentage of the working-age population that is actually in the labor force
learning by doing
achieving greater productivity and lover average total cost through gains in knowledge and skill that accompany repetition of a task a source of economies of scale
network effects
increases in the value of a product to each user, including existing users, as the total number of users rises
New Economy
the label attached by some economists and the popular press to the U.S. economy since 1995. The main characteristics are accelerated productivity growth and economic growth, caused by rapid technological advance and the emergence of the global economy
start-up firms
a new firm focused on creating and introducing a particular new product or employing a specific new production or distribution method
supply factors
an increase in the availability of a resource, an improvement in its quality, or an expansion of technological knowledge that makes it possible for an economy to produce a greater output of goods and services