AMSCO AP Macroeconomics Unit 4 (2023)

Asset

Any resource or value that can be converted into cash

Demand deposit

money in a checking account that can be paid out "on demand" or at any time

Liquidity

the ease with which an asset can be converted into cash

Securities

All of the investments, including stocks, bonds, mutual funds, options, and commodities, that are traded.

Risk

Degree of uncertainty of return on an asset; in business, the likelihood of loss or reduced profit.

Loans

amounts of money borrowed which will accumulate interest

Rate of return

the percentage of increase in the value of your savings from earned interest

Time value

difference between an option's price and its intrinsic value

Nominal interest rate

the interest rate actually paid for a loan, not adjusted for inflation

Real interest rate

the interest rate corrected for the effects of inflation

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.

Unit of account

a means for comparing the values of goods and services

Store of value

something that keeps its value if it is stored rather than used

Currency

a system of money in general use in a particular country.

Monetary unit

standard unit of currency in a country's money supply

Commodity money

money that takes the form of a commodity with intrinsic value

Representative money

money that is backed by an item of value, such as gold or silver

Gold standard

A monetary system in which paper money and coins are equal to the value of a certain amount of gold

Fiat money

a medium of exchange whose value derives entirely from its official status as a means of payment

Money supply

the total value of financial assets in the economy that are considered money

Monetary base

the sum of currency in circulation and bank reserves

Depository institutions

Financial institutions that accept deposits from individuals and provide loans

Commercial banks

Privately owned financial institutions that accept demand deposits and make loans and provide other services for the public

Savings and loan associations

financial institutions that hold customers' funds in interest-bearing accounts and invest mainly in mortgage loans

Credit unions

Banks that are owned by their members to create a pool of money for low-interest loans.

Deposits

a sum of money placed or kept in a bank account, usually to gain interest.

Checks

written orders to a bank to pay a certain amount of money from a checking account to another person or business

ATM

Automated Teller Machine, allows card holder to withdrawal money from person's account

Electronic funds transfer

a computerized cash payments system that transfers funds without the use of checks, currency, or other paper documents

Withdrawals

Assets taken from the business for the owner's personal use.

Balance sheet

A financial statement that reports the assets and claims to those assets at a specific point in time.

Federal Reserve System

The country's central banking system, which is responsible for the nation's monetary policy by regulating the supply of money and interest rates

Reserve requirement

the percentage of deposits that banking institutions must hold in reserve

Reserve ratio

the fraction of bank deposits that a bank holds as reserves

Excess reserves

a bank's reserves over and above its required reserves

Fractional reserve banking

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

Money multiplier

the amount of money the banking system generates with each dollar of reserves

Speculative demand for money

the demand for money that arises because holding money over short periods is less risky than holding stocks or bonds

Monetary supply

the quantity of money available in the economy

Money market

the trade in short-term loans between banks and other financial institutions.

Monetary policy

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

Central bank

an institution designed to oversee the banking system and regulate the quantity of money in the economy

Expansionary policy

a fiscal policy used to encourage economic growth, often through increased spending or tax cuts

Contractionary policy

a fiscal policy used to reduce economic growth, often through decreased spending or higher taxes

Open-market operations

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

Federal funds rate

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

Discount rate

rate the Federal Reserve charges for loans to commercial banks

Loanable funds market

a hypothetical market that illustrates the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders

National saving

the total income in the economy that remains after paying for consumption and government purchases

Investment spending

spending on new productive physical capital, such as machinery and structures, and on changes in inventories

Equilibrium interest rate

the interest rate at which the quantity of loanable funds supplied equals the quantity of loanable funds demanded