Macroeconomics - chapter 15 Money, Banking, and Central Banking

Vocabulary flashcards based on lecture notes about money, banking, and central banking.

Money

Anything that is universally accepted as payment for goods, services, and debts.

Barter

The direct exchange of goods and services for other goods and services.

Medium of exchange

Any item that sellers accept as payment.

Unit of accounting

A measure by which prices are expressed.

Store of value

The ability to hold value or purchasing power over time.

Standard of deferred payment

Valuable for settling debts that mature in the future.

Liquidity

How easily and quickly an asset can be converted to cash.

Money supply

Amount of money in circulation.

M1

Currency (coins and paper money) not in a bank + Transactions deposits (checking accounts) + Traveler’s checks.

M2

M1 + Small time deposits (savings accounts + CDs < $100,000 + money market mutual funds).

Financial intermediaries

Institutions that accept savings from households, businesses, and governments and make loans to other households, businesses, and governments.

Asymmetric information

One party in a transaction has more or better information than the other.

Adverse selection

High-risk borrowers are more likely to seek and receive loans (occurs before the transaction).

Moral hazard

A borrower might engage in riskier behavior after receiving a loan (occurs after the transaction).

The Fed

The central bank of the United States.

Board of Governors (BOG)

Governing body for the Fed.

Federal Open Market Committee (FOMC)

Sets monetary policy for the country.

12 Federal Reserve Banks (FRB)

One bank per district + 25 branch banks

Fractional reserve banking

Banks hold a portion of deposits “on reserve” and lend the rest out.

Reserves

Cash in the bank’s vault and its deposits at the FRB.

Reserve ratio

Fraction of transactions deposits that banks hold as reserves.

Assets

What the bank owns or is owed (loans, mortgages, government bonds).

Liabilities

What the bank owes to others (transactions deposits and other deposits).

Required reserves

Reserves the Fed requires banks to hold.

Excess reserves

Reserves banks hold voluntarily (they can lend excess reserves).

Open market operations

Buying or selling of existing U.S. government securities (bonds) by the Fed.

Federal Deposit Insurance Corporation (FDIC)

A government agency that insures deposits held in banks and other depository institutions.