Chapter 24

Money

is anything that serves as a medium of exchange

Medium of Exchange

is anything that is widely accepted as a means of payment

Barter

occurs when goods are exchanged directly for other goods

Store of Value

an item that holds value over time

Commodity Money

is money that has value apart from its use as money

Fiat Money

is money that some authority, generally a government, has ordered to be accepted as a medium of exchange

Currency

paper money and coins

Financial Intermediary

An institution that amasses funds from one group and makes them available to another

Bank

which is a financial intermediary that accepts deposits, makes loans, and offers checking accounts

Assets

are anything of value

Liabilities

are obligations to other parties

Net Worth

equals assets less liabilities

Reserves

Bank assets held as cash in vaults and in deposits with the Federal Reserve

Fractional Reserve Banking System

A system in which banks hold reserves whose value is less than the sum of claims outstanding on those reserves

Required Reserves

The quantity of reserves banks are required to hold

Required Reserve Ratio

The ratio of reserves to checkable deposits a bank must maintain

Central Bank

performs five primary functions: (1) it acts as a banker to the central government, (2) it acts as a banker to banks, (3) it acts as a regulator of banks, (4) it conducts monetary policy, and (5) it supports the stability of the financial system

Discount Rate

is the interest rate charged by the Fed when it lends reserves to banks

Federal Funds Market

is a market in which banks lend reserves to one another

Federal Funds Rate

The interest rate charged when one bank lends reserves to another

Open Market Operations

The buying and selling of federal government bonds by the Fed