Ap Econ Unit 3 Vocab

Asset demand

The desire to hold money as a financial store of value instead of other interest-bearing assets.

Assets

Items of economic value that an individual or corporation owns.

Balance sheet

A financial statement summarizing Assets = Liabilities + Equity at a specific point in time.

Bank run

A large number of depositors simultaneously withdrawing their money due to fears of bank failure.

Board of Governors

The seven-member governing body that controls the Federal Reserve System.

Bonds

Debt securities promising fixed interest payments, issued by governments or corporations.

Capital inflow

A net increase in foreign investment in a country (money coming in).

Capital outflow

A net increase in domestic investment abroad (money leaving the country).

Central bank

The institution that manages a country's money supply and oversees the banking system (e.g., the Fed).

Checkable bank deposits /demand deposits

Funds in bank accounts that depositors can access on demand (e.g., via checks or debit cards).

Currency

Physical paper money and coins in circulation.

Deposit insurance (FDIC)

A guarantee that depositors will be repaid their deposits (up to a limit) even if the bank fails.

Discount rate

The interest rate at which commercial banks can borrow money directly from the Central Bank.

District Banks

The twelve regional Federal Reserve Banks that carry out the Central Bank's operations.

Easy Monetary Policy

Central bank action to increase the money supply and lower interest rates to stimulate the economy.

Excess reserves

Reserves a bank holds above the legally required amount.

Federal funds market

The market where banks lend excess reserves to other banks, typically overnight.

Federal funds rate

The target interest rate for interbank lending in the federal funds market.

Federal Open Market Committee (FOMC)

The policymaking body of the Fed that makes decisions about open-market operations.

Fiat money

Money that has no intrinsic value and is declared legal tender by a government.

Financial asset

A non-physical asset with value based on a contractual claim to future cash flows.

Financial intermediary

An institution (like a bank) that channels funds from savers to borrowers.

Fisher effect

The principle that the nominal interest rate equals the real rate plus expected inflation.

Fractional reserve system

A banking system where banks hold only a fraction of deposits in reserve and lend the rest.

Future value

The worth of an asset at a specified date in the future, assuming a certain growth rate.

Interest on Reserve Balances (IORB)

The interest rate paid by the Central Bank to commercial banks on the reserves they hold.

Interest rate

The cost of borrowing money or the return on lending it, expressed as a percentage.

Liability

An obligation or debt that an entity is required to pay.

Liquid

An asset that can be quickly converted to cash with minimal loss of value.

Loanable funds market

The market where the interaction of savers (supply) and borrowers (demand) determines the real interest rate.

Loan-backed securities

Assets created by bundling loans (like mortgages) and selling claims to their payments.

M1

The narrowest money supply measure

M2

A broader money supply measure

Medium of exchange

An item buyers give to sellers when they purchase goods and services.

Monetary aggregate

A broad measure of the money supply in an economy.

Monetary base

The sum of currency in circulation and bank reserves held at the central bank.

Monetary policy

Actions by a central bank to manipulate the money supply and credit to influence the economy.

Money

Any asset that is widely accepted as payment for goods and services.

Money demand curve

A graph showing the quantity of money people want to hold at various interest rates.

Money market

The market where the demand for and supply of money determine the nominal interest rate.

Money multiplier

The ratio showing the maximum potential increase in the money supply from a change in the monetary base.

Money supply

The total amount of money available in an economy.

Near-monies

Highly liquid financial assets that are not a medium of exchange but can be easily converted to cash.

Open-market operation

The central bank's buying and selling of government securities to control the money supply.

Policy Rate

The key short-term interest rate set or targeted by the central bank.

Physical asset

A tangible item of value, such as real estate or equipment.

Reserve ratio

The fraction of deposits a bank actually holds in reserves.

Reserve requirement

The minimum fraction of deposits a bank must legally hold in reserve.

Savings

The portion of income that is not spent on consumption.

Securities

Tradeable financial assets, usually representing debt (bonds) or ownership (stocks).

Store of value

An item that people can use to transfer purchasing power from the present to the future.

Tight Monetary Policy

Central bank action to decrease the money supply and raise interest rates to fight inflation.

Transaction costs

The costs (time, effort, fees) associated with making an exchange.

Transaction demand

The desire to hold money for everyday purchases.

Unit of account/measure of value

A standard measure used to set prices and record debts.

Velocity of money

The average number of times a unit of money is spent in a year to buy goods and services.