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43 Cards in this Set
- Front
- Back
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money |
any good that is widely accepted for purpose of exchange and in the repayment of debt |
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barter |
exchanging goods and services for other goods and services without the use of money |
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Money as a Medium of Exchange |
anything that is generally acceptable in exchange for goods and services |
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Money as a Unit of Account |
a common measure in which relative values are expressed |
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Money as a Store of Value |
the ability of an item to hold value over time |
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M1 = |
Currency held outside of banks + Checkable deposits + Traveler's checks
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M2 = |
M1 + Savings deposits +Small denomination time deposits + Money market mutual funds |
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fractional reserve banking |
banking arrangement that allows banks to hold reserves equal to only a fraction of their deposit liabilities |
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reserves |
bank deposits + Vault cash |
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required reserve ratio |
percentage of each dollar deposited that must be held on reserve |
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required reserves |
ratio x checkable deposits |
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excess reserves |
reserves - required serves |
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direct finance |
borrowers and lenders come together in a market setting |
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indirect finance |
funds are loaned and borrowed through a financial intermediary |
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financial intermediary |
transfers funds from those who want to lend funds to those who want to borrow them |
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asymmetric info |
relates to an economic agent on one side of a transaction having info that an economic agent on the other side of the transaction does not have |
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adverse selection |
occurs when the parties on one side of the market, who have info not known to others, self-select in a way that adversely affects the parties on the other side of the market |
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moral hazard |
a condition that exists when one party to a transaction changes his or her behavior in a way that is hidden from and costly to the other party |
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liabilities > assets |
insolvency occurs when |
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savings deposit |
interest-earning account at a commercial bank or thrift institution |
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money market deposit account |
interest-earning account at a bank or thrift institution; offer limited check writing privileges |
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time deposit |
interest-earning deposit with a specified maturity date |
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money market mutual fund |
interest-earning account at a mutual fund company |
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Board of Governors |
the governing body of the Federal Reserve System |
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Federal Open Market Committee (FOMC) |
12 member policymaking group within the Fed; has the authority to conduct open market operations |
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Open Market Operations |
the buying and selling of government securities by the Fed |
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12 members; 7 Board of Governors (14 yr terms); 5 Federal Reserve District bank presidents |
How many members are in the FOMC? Who are they? |
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12 district banks |
How many district banks are there in the U.S? |
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Monetary Policy |
changes in the money supply, or in the rate of change of the money supply, to achieve particular macroeconomic goals |
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budgetary agency |
The U.S. Treasury is a ____________ agency? |
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monetary agency |
The Fed is a ________ agency?
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controls the money supply |
What is the most important responsibility of the Fed? |
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- open market operations - required reserve ratio - discount rate |
Tools for increasing and decreasing the money supply |
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open market purchase |
the buying of U.S. government securities by the Fed
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Open Market Sale |
the selling of U.S. government securities by the Fed |
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increase in reserves; increase in money supply |
A Federal purchase of securities results in... |
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decrease in reserves; decrease in money supply |
A Federal sale of government securities results in... |
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- to increase loan making ability - to meet required reserve requirements |
Why do banks borrow reserves? |
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discount loan |
a loan the Fed makes to a commercial bank |
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discount rate |
the interest rate the Fed charges depository institutions that borrow reserves from it |
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Federal Funds Rate |
the interest rate banks charge one another to borrow reserves |
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Federal Funds Market |
a market where banks lend reserves to one another |
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free banking |
each individual bank would issue its own currency based on commodity reserves |
