Unit 4 Macroeconomics

Fiscal Policy

Government use of taxes and spending to influence the economy.

Medium of Exchange

Something accepted as payment for goods and services (like money).

Unit of Account

A way to measure and compare the value of goods and services.

Store of Value

A way to save purchasing power for future use.

M1 Money

Very liquid money: cash, coins, and checking deposits.

M2 Money

M1 plus savings accounts, small time deposits, and money market funds.

Interest Rate

The cost of borrowing money, or the return on saving.

Credit Score

A number that represents a person's creditworthiness.

Treasury Bond

A long-term government-issued debt security.

Mortgage

A loan used to buy a house or property.

Fractional Reserve Banking

Banks keep part of deposits and lend the rest.

The Federal Reserve

The central bank of the U.S., controlling money supply.

Bank Failure

When a bank can't meet its obligations and collapses.

Required Reserve

The minimum amount of deposits a bank must keep on hand.

Excess Reserve

Money a bank can lend out, beyond required reserves.

Monetary Policy

The Fed’s control of money supply and interest rates to stabilize the economy.

Open Market Operations

The Fed buys/sells government bonds to affect money supply.

The Discount Rate

The interest rate the Fed charges banks for loans.

The Reserve Requirement

The rule on how much money banks must keep in reserves.

Monetarism

The theory that the money supply is the key to economic health.

Fisher Equation

Real Interest Rate = Nominal Rate − Inflation Rate.

Quantity Theory of Money (MV=PQ)

Money supply times velocity equals price level times output.

Money Multiplier (1 / Reserve Requirement)

Shows how much money can be created from a deposit.

T-Account

A tool to show changes in a bank's assets and liabilities.