Econ 2 Set 3

Front 1

money not redeemable for any commodity; its status as money is conferred initially by the government but eventually by common experiences

Back 1

Flat Money

Front 2

U.S. currency that constitutes a valid and legal offer of payment of debt

Back 2

Legal Tender

Front 3

institutions that serve as go-betweens, accepting funds from savers and lending them to borrowers

Back 3

Financial Intermediaries

Front 4

commercial banks and thrift institutions; financial institutions that accept deposits from the public

Back 4

Depository Institutions

Front 5

depository institutions that historically make short-term loans primarily to businesses

Back 5

Commercial Banks

Front 6

savings banks and credit unions; depository institutions that historically lent money to households

Back 6

Thrift Institutions (Thrifts)

Front 7

the central bank and monetary authority of the United States

Back 7

Federal Reserve System (The FED)

Front 8

funds that banks use to satisfy the cash demands of their customers and the reserve requirements of the FED; reserves consist of cash held by banks plus deposit at the FED

Back 8

Reserves

Front 9

the 12-member group that makes decisions about the open-market operations – purchases and sales of U.S. government securities by the FED that affect the money supply and interest rates; consists of the 7 Board governors plus 5 of the 12 Presidents of the reserve banks

Back 9

Federal Open Market Committee (FOMC)

Front 10

purchases sales of government securities by the Federal Reserve in an effort to influence the money supply

Back 10

Open-Market Operations

Front 11

a collection of short-term interest-earning assets purchased with funds collected from many shareholders (limited check writing privileges/competition for banks)

Back 11

Money Market Mutual Fund

Front 12

A bank’s additional offices that carry out banking operations

Back 12

Bank Branches

Front 13

a corporation that owns banks

Back 13

Bank Holding Company

Front 14

deposits in financial institutions against which checks can be written and ATM or debit cards can be applied

Back 14

Checkable Deposits

Front 15

measures of the economy’s money supply

Back 15

Money Aggregates

Front 16

the narrowest measure of the money supply, consisting of currency and coins held by the non-banking public, checkable deposits, and traveler’s checks

Back 16

M1

Front 17

deposits that earn interest but have no specific maturity date

Back 17

Savings Deposits

Front 18

deposits that earn a fixed rate of interest if held for the specified period, which can be range from several months to several years; also called certificate of deposits (CD’s)

Back 18

Time Deposits

Front 19

a money aggregate consisting of M1 plus savings deposits, small denomination time deposits, and money market mutual funds

Back 19

M2

Front 20

a money aggregate consisting of M2 plus larger-denomination time deposits

Back 20

M3

Front 21

cards that tap directly into the depositor’s bank account to fund purchases; also called a check card, and usually doubles as an ATM card

Back 21

Debit Card

Front 22

a situation in which one side of the market has more reliable information that the other side

Back 22

Asymmetric Information

Front 23

assets minus liabilities

Back 23

Net Worth

Front 24

a financial statement that shows assets, liabilities, and net worth at a given point in time; all these are stock measures; because assets must equal liabilities plus net worth, the statement is in balance

Back 24

Balance Sheet

Front 25

anything of value that is owned

Back 25

Asset

Front 26

anything that is owed to another individual or institution

Back 26

Liability

Front 27

the dollar amount of reserves a bank is obligated by regulation to hold

Back 27

Required Reserves

Front 28

the ratio of reserves to deposits that banks are obligated by regulation to hold

Back 28

Required Reserve Ratio

Front 29

bank reserves exceeding required reserves

Back 29

Excess Reserves

Front 30

a measure of the ease with which an asset can be converted into money without a significant loss of value

Back 30

Liquidity

Front 31

a market for overnight lending and borrowing of reserves among banks; the market for reserves on account at the FED

Back 31

Federal Funds Market

Front 32

the interest rate changed in the federal funds market; the interest rate banks charge one another for overnight borrowing; the FED’s target interest rate

Back 32

Federal Funds Rate

Front 33

the multiple by which the money supply increases as a result if an increase in fresh reserves in the banking system

Back 33

Money Multiplier

Front 34

the reciprocal of the required reserve ratio, or 1/r; the maximum multiple of fresh reserves by which the money supply can increase

Back 34

Simple Money Multiplier

Front 35

conducting banking transactions over the internet

Back 35

Electronic Banking, or E-Banking

Front 36

the purchase of U.S. government bonds by the FED to increase the money supply

Back 36

Open-Market Purchase

Front 37

the sale of U.S. government bonds by the FED to reduce the money supply

Back 37

Open-Market Sale

Front 38

the interest rate the FED charges banks that borrow reserves

Back 38

Discount Rate

Front 39

the relationship between how much money people want to hold and the interest rate (people demand money to carry out market transactions)

Back 39

Demand for Money

Front 40

if the velocity of money is stable, or at least predictable, changes in the money supply have predictable effects on nominal GDP

Back 40

The Quantity Theory of Money

Front 41

the quantity of money, M, multiplies by its velocity, V, equals nominal GDP, which is the product of the price level, P, and real GDP, Y

Back 41

Equation of Exchange

Front 42

the average number of times per year each dollar is used to purchase final goods and services

Back 42

Velocity of Money