The Economics of Money, Banking, and Financial Markets

Flashcards based on the lecture on the economics of money, banking, and financial markets, focusing on key terms and their definitions.

Money Multiplier

A formula that expresses the relationship between the money supply (M) and the monetary base (MB), defined as M = m × MB.

Monetary Base (MB)

The total amount of money available in an economy, which includes currency in circulation and reserves held by banks.

Reserve Ratio

The fraction of deposits that a bank must keep in reserve and not lend out, typically expressed as a percentage.

Chequable Deposits

Deposits in a bank that can be withdrawn or transferred using checks or debit cards.

Excess Reserves

Reserves held by a bank beyond the required reserve ratio, which the bank can use for lending.

Balance Sheet

A financial statement that summarizes a bank's assets, liabilities, and equity at a specific point in time.

Loan Creation

The process by which banks create money through extending loans, leading to an increase in the money supply.

Settlement Balances

The account balances that banks hold at the central bank, which are used for settling payments between banks.

Deposit

Money placed into a bank account, which can lead to an increase in the money supply through the money multiplier effect.

Liquidity Needs

The need for cash or cash-equivalents to meet withdrawals and make payments.