Chapter 16 - The Monetary System

Reserve requirements

Reserve requirements

________- regulations on the minimum amount of reserves that banks must hold against deposits.

Reserves

________- deposits that banks have received but have not loaned out.

Store of value

________- an item that people can use to transfer purchasing power from the present to the future.

Feds

________ do not control the amount that bankers choose to lend.

Reserve ratio

________ - the fraction of deposits that banks hold as reserves.

Unit of discount

________- the yardstick people use to post prices and record debts.

Liquidity

________- the ease with which an asset can be converted into the economys medium of exchange.

Currency

________- the paper bills and coins in the hands of the public.

Monetary policy

________- the setting of the money supply by policymakers in the central bank.

FED

regulate banks and ensure the health of the banking system and control the money supply.

Leverage

________- the use of borrowed money to supplement existing funds for purposes of investment.

Medium of exchange

________- an item that buyers give to sellers when they want to purchase goods and services.

Discount rate

________- The interest rate on the loans that the Fed makes to banks.

Open-market operations

the purchase and sale of US government bonds by the Fed.

balance of reserves

The ________ in banks rely on the amount of money households choose to deposit.

Federal funds rate

________- the interest rate at which banks make overnight loans to one another.

Federal Reserve

________ (Fed)- the central bank of the United States.

Money supply

________- the quantity of money available in the economy.

Central bank

an institution designed to oversee the banking system and regulate the quantity of money in the economy.

Fractional-reserve banking

a banking system in which banks hold only a fraction of deposits as reserves.

Leverage ratio

________ - the ratio of assets to bank capital.