Chapter 13: Financial Sector

Money

something commonly accepted as payment for goods and service

Currency

item used as money but does not act as a store of value and has no intrinsic value

Commodity money

raw material with intrinsic value used as exchange for other goods

Wealth

value of total assets owned by individual or entity

Money supply

amount of money available on the market

Liquidity

refers to how easily money can be accessed

Fractional reserve banking system

only a portion of total deposits are held while the rest are lent out

Money creation

generation of assets caused by initial deposit to bank which is held partially in reserve, partially constantly redistributed as a loan

Money multiplier

total amount of deposits resulting from initial deposit that is held as reserve

Discount rate

interest rate banks pay to borrow money from the Fed

Open market operations

involve Feds purchase and sale of government securities

Financial assets

entities over which institutional units or individuals assert ownership rights

Monetary policy

use of money and credit controls to influence interest rates, inflation, exchange rate, unemployment, real GDP