Money and Monetary Policy

These flashcards cover key terms and concepts related to money and monetary policy from the lecture notes.

Medium of Exchange

What sellers generally accept and buyers generally use to pay for goods and services.

Liquidity

The property of money that makes it portable and readily accepted, allowing for easy exchange for goods.

Store of Value

An asset that can be used to transport purchasing power from one time period to another.

Unit of Account

A standard unit that provides a consistent way of quoting prices.

Fiat Money

Items designated as money that are intrinsically worthless.

Legal Tender

Money that a government has required to be accepted in settlement of debts.

Debasement

The decrease in the value of money that occurs when its supply is increased rapidly.

M1

The most liquid form of money, including cash and demand deposits.

M2

Includes everything in M1 plus near money such as savings accounts and money market accounts.

Financial Intermediation

The process of transferring funds from savers to borrowers.

Central Bank

A financial institution controlled by the government that manages a country's currency and monetary policy.

Federal Funds Rate

The interest rate one bank charges another for overnight loans of reserves.

Reserve Ratio

The percentage of deposits that banks must hold as reserves.

Open Market Operations

The purchase and sale of government securities by the Federal Reserve to control the money supply.

Quantitative Easing

A monetary policy where the central bank purchases financial assets to inject money into the economy.

Demand for Money

The desire to hold money for transactions, which is influenced by interest rates and income levels.

Nominal Money

The amount of money expressed in current dollar values.

Real Money

The purchasing power of money, determined by the number of dollars divided by the price level.

Interest Rate

The cost of holding money, expressed as a percentage.

Money Multiplier

The factor by which deposits can increase for every dollar increase in reserves.