Money and the Financial System

These flashcards cover key vocabulary and concepts related to money and the financial system as outlined in the lecture notes.

Money

Any commodity or token that is generally acceptable as a means of payment.

Medium of Exchange

An object that is generally accepted in exchange for goods and services.

Unit of Account

An agreed measure for stating the prices of goods and services.

Store of Value

A function of money that allows it to be held over time and later exchanged for goods and services.

Barter

A system of exchange where goods and services are traded directly without the use of money.

Reserve Bank

A central bank responsible for regulating a country's monetary and financial institutions.

Excess Reserves

Actual reserves held by a bank minus the desired reserves.

Money Multiplier

The ratio that determines the maximum amount of money that can be created in the banking system from an initial deposit.

Nominal Interest Rate

The opportunity cost of holding wealth in the form of money rather than in an interest-bearing asset.

Demand for Money

The relationship between the quantity of real money demanded and the interest rate.

Quantity Theory of Money

The proposition that an increase in the quantity of money leads to an equal percentage increase in the price level in the long run.

Velocity of Circulation

The average number of times in a year a dollar is used to purchase goods and services.

Reserve Ratio

The fraction of a bank's total deposits that is held as reserves.

Currency Drain

The portion of total deposits that is held in cash rather than in bank deposits.