Chapter 31: Money and Banking

Medium of exchange

Usable for buying and selling goods and services

Unit of account

Society uses monetary units—dollars, in the United States—as a yardstick for measuring the relative worth of a wide variety of goods, services, and resources

Store of value

Enables people to transfer purchasing power from the present to the future

Liquidity

The ease with which an asset can be converted quickly into the most widely accepted and easily spent form of money, cash, with little or no loss of purchasing power

M1

Currency (coins and paper money) in the hands of the public and all checkable deposits (all deposits in commercial banks and “thrift” or savings institutions on which checks of any size can be drawn)

Federal Reserve Notes

Paper money issued by the Federal Reserve System (the U.S. central bank)

Token money

The face value of any piece of currency is unrelated to its intrinsic value—the value of the physical material (metal or paper and ink) out of which that piece of currency is constructed

Checkable deposits

A way to transfer the ownership of deposits in banks and other financial institutions

Runaway inflation

________ may significantly depreciate the value of money between the time it is received and the time it is spent.

Commercial banks

Accept the deposits of households and businesses, keep the money safe until it is demanded via checks, and in the meantime use it to make available a wide variety of loans

amount a dollar

The ________ will buy varies inversely with the price level.

Thrift institutions

Savings and loan associations (S&Ls), mutual savings banks, and credit unions

Near-monies

Certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into currency or checkable deposits

Money market deposit account (MMDA)

An interest-bearing account containing a variety of interest-bearing short-term securities

Time deposits

Funds become available at their maturity

Medium of exchange

Usable for buying and selling goods and services

Unit of account

Society uses monetary units-dollars, in the United States-as a yardstick for measuring the relative worth of a wide variety of goods, services, and resources

Store of value

Enables people to transfer purchasing power from the present to the future

Liquidity

The ease with which an asset can be converted quickly into the most widely accepted and easily spent form of money, cash, with little or no loss of purchasing power

M1

Currency (coins and paper money) in the hands of the public and all checkable deposits (all deposits in commercial banks and "thrift" or savings institutions on which checks of any size can be drawn)

Federal Reserve Notes

Paper money issued by the Federal Reserve System (the U.S. central bank

Token money

The face value of any piece of currency is unrelated to its intrinsic value-the value of the physical material (metal or paper and ink) out of which that piece of currency is constructed

Checkable deposits

A way to transfer the ownership of deposits in banks and other financial institutions

Commercial banks

Accept the deposits of households and businesses, keep the money safe until it is demanded via checks, and in the meantime use it to make available a wide variety of loans

Thrift institutions

Savings and loan associations (S&Ls), mutual savings banks, and credit unions

Near-monies

Certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into currency or checkable deposits

Money market deposit account (MMDA)

An interest-bearing account containing a variety of interest-bearing short-term securities

Time deposits

Funds become available at their maturity

Money market mutual fund (MMMF)

Mutual fund companies use the combined funds of individual shareholders to buy interest-bearing short-term credit instruments such as certificates of deposit and U.S. government securities

Acceptability

Currency and checkable deposits are money because people accept them as money

Legal tender

Paper money is a valid and legal means of payment of any debt that was contracted in dollars

Federal Reserve System

Directs the activities of the 12 Federal Reserve Banks, which in turn control the lending activity of the nations banks and thrift institutions

Board of Governors

Central authority of the U.S. money and banking system

Federal Reserve Banks

Blend private and public control, collectively serving as the nations central bank

Federal Open Market Committee (FOMC)

Aids the Board of Governors in conducting monetary policy

Electronic payments

Used to replace currency and checks to buy products, pay bills, pay income taxes, transfer bank funds, and handle recurring mortgage and utility payments

Money market mutual fund (MMMF)

Mutual fund companies use the combined funds of individual shareholders to buy interest-bearing short-term credit instruments such as certificates of deposit and U.S. government securities

Legal tender

Paper money is a valid and legal means of payment of any debt that was contracted in dollars

Federal Reserve System

Directs the activities of the 12 Federal Reserve Banks, which in turn control the lending activity of the nation’s banks and thrift institutions

Board of Governors

Central authority of the U.S. money and banking system

Federal Reserve Banks

Blend private and public control, collectively serving as the nation’s central bank

Federal Open Market Committee (FOMC)

Aids the Board of Governors in conducting monetary policy

Electronic payments

Used to replace currency and checks to buy products, pay bills, pay income taxes, transfer bank funds, and handle recurring mortgage and utility payments