Money, the Price Level, and Inflation

These flashcards cover key vocabulary related to money, banks, the Federal Reserve, and monetary concepts discussed in the lecture.

Medium of Exchange

An object that is generally accepted in exchange for goods and services.

Unit of Account

An agreed measure for stating the prices of goods and services.

Store of Value

Money can be held for a time and later exchanged for goods and services.

Liquidity

The property of being instantly convertible into a means of payment with little loss of value.

Depository Institution

A firm that takes deposits from households and firms and makes loans to others.

Commercial Banks

Private firms licensed to receive deposits and make loans.

Thrift Institutions

Savings and loan associations, savings banks, and credit unions.

Money Market Mutual Funds

Funds operated by financial institutions that hold assets like U.S. Treasury bills.

Federal Reserve System (the Fed)

The central bank of the United States, regulating depository institutions and controlling money supply.

Required Reserve Ratio

The minimum percentage of deposits that a depository institution must hold as reserves.

Open Market Operations

The purchase or sale of government securities by the Fed from or to commercial banks or the public.

Money Multiplier

The ratio of the change in the quantity of money to the change in the monetary base.

Nominal Interest Rate

The opportunity cost of holding wealth in the form of money instead of an interest-bearing asset.

Quantity Theory of Money

Proposition that an increase in the quantity of money results in an equal percentage increase in the price level.

Velocity of Circulation

The average number of times in a year a dollar is used to purchase goods and services.

Currency Drain Ratio

The ratio of currency that drains from deposits with increased money supply.