Topic 6 - Money & Banking

Money

Anything that serves as a medium of exchange, a unit of account, and a store of value

Medium of Exchange

Anything that is used to determine value during the exchange of goods and services

Barter

The direct exchange of one set of goods or services for another set of goods or services

Unit of Account

Unit of Account

A means for comparing the values of goods and services

Store of value

To keep value when held onto--or stored--instead of spending

Currency

Anything that is used as money; today we use coins and paper bills as money

Commodity Money

Consists of objects that have value in and of themselves and that are also used as money

Representative Money

Makes use of objects that have value solely because the holder can exchange them for something else of value

Specie

Coins made of gold or silver that one could be given in exchange for paper money

Fiat Money 

A fiat is an order or decree; fiat money has value because a government has decided that it is an acceptable means to pay debts

Bank

An institution for receiving, keeping, and lending money

National Bank

A bank chartered, or licensed by the federal government

Bank Runs

Widespread panics in which great numbers of people try to redeem their paper money at the same time

Greenbacks

Printed in 1861 and nicknamed because they were printed with green ink; these were the first paper currency issued by the US Treasury since the Continental

Gold Standard

A monetary system in which paper money and coins had the value of certain amounts of gold

Central Bank

A bank that can lend to other banks in times of need

Federal Reserve Bank

One of 12 regional banks of the Federal Reserve System responsible for implementing the Fed's monetary policy

Member Banks

Banks that belong to the Federal Reserve Bank

Federal Reserve Board

A Board appointed by the President of the United States to supervise all of the Federal Reserve Banks

Short-Term Loans

Federal Reserve member banks can borrow money to meet short-term demands; this helps prevent bank failures that occurred when large numbers of depositors withdrew funds during a panic

Federal Reserve Notes

The national currency we use today in the United States

Foreclosures

The seizure of property from borrowers who are unable to repay their loans

Monetary Policy

The actions that the Federal Reserve System takes to influence the level of real GDP and the rate of inflation in the economy

Reserves

Deposits that a bank keeps readily available as opposed to lending them out

Reserve Requirements

The amount of reserves that banks are required to keep on hand

Check Clearing

The process by which banks record whose account gives up money and whose account receives money as a result of a customer writing a check

Bank Holding Company

A company that owns more than one bank

Federal Funds Rate

The interest rate that banks can charge each other for loans

Discount Rate

The interest rate that the Federal Reserve Bank charges commercial banks for loans.

Money Supply

All the money available in the United States economy

Liquidity

The ability to be used as, or directly converted into cash

Demand Deposits

Money in a checking account that can be paid “on demand,” or at any time

Money Market Mutual Funds

Funds that pool money from small savers to purchase short-term government and corporate securities.

Fractional Reserve Banking

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

Default

To fail to pay back a loan

Mortgage

A specific type of loan that is used to buy real estate

Credit Card

A card entitling its owner to buy goods and services based on the owner’s promise to pay for those goods and services

Interest

The price paid for the use of borrowed money

Principal

The amount of money borrowed