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21 Cards in this Set
- Front
- Back
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Run on a Bank
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Occurs when many depositors withdraw cash from their accounts all at once
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Barter
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A system of exchange in which people directly trade one good for another, without using money as an intermediate step
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Money
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The standard object used in exchanging goods and services. In short, money is the medium of exchange.
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Medium of Exchange
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The object used to buy and sell other items such as goods and services
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Unit of Account
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The standard unit for quoting prices
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Store of Value
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An item used to store wealth from one point in time to another
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Commodity Money
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An object in use as a medium exchange that also has a substantial value in alternative (nonmonetary) uses.
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Fiat Money
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Money that is decreed as such by the government. It is of little value as a commodity, bu tit maintains its value as a medium of exchange because people have faith that the issuer will stand behind the pieces of printed paper and limit their production
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M1
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The sum of all coins and paper money in circulation, plus certain checkable deposit balances at banks and savings institutions
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M2
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The sum of all coins and paper money in circulation, plus all type of checkin account balances, plus most forms of saving account balances, plus shares in money market mutual funds.
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Near Monies
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Liquid assets that are close substitutes for money
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Liquidity
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Refers to the ease with which an asset can be converted into cash
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Fractional Reserve Banking
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A system under which bankers keep as reserves only a fraction of the funds they hold on deposit
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Deposit Insurance
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A system that guarantees that depositors will not lose money even if their bank goes bankrupt
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Moral Hazard
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The idea that, when people are insured against the consequences of a risk, they will engage in riskier behavior.
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Required Reserves
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The minimum amount of reserves (in cash or the equivalent) required by law. Normally, required reserves are proportional to the volume of deposits
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Systematic Risk
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Refers to risks to the entire system of banks or financial institutions. It arises because these institutions, especially the largest ones, are interlinked in many ways
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Systemically Important
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Financial institution is one which, by virtue of its size or interconnectedness, can threaten the entire system if it runs into trouble.
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Deposit Creation
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Refers to the process by which a fractional reserve banking system turns $1 of bank reserves into several dollars of bank deposits.
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Excess reserves
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Any reserves held in excess of the legal minimum.
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Money Multiplier
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The ratio of newly created bank deposits to new reserves
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