Chapter 20 - Money, price & financial intermediaries

M2

M2

________: all the assets in M1 plus some additional assets that are usable in making payments but at greater cost or inconvenience than currency or checks.

Financial intermediaries

________: firms that extend credit to borrowers using funds raised from savers.

Medium of exchange

________: asset used in purchasing goods and services.

Barter

________: direct trade of goods or services for other goods /services.

M1

________: sum of currency outstanding and balances held in checking accounts.

Monetary policy

________: determination of the nation's money supply.

Velocity

________: measure of the speed at which money changes hands in transactions involving final goods and services, or, equivalently, nominal GDP divided by the stock of money.

Quantity equation

________: money times velocity equals nominal GDP.

Unit of account

________: basic measure of economic value.

Financial intermediaries

firms that extend credit to borrowers using funds raised from savers

Money

any asset that can be used in making purchases

Medium of exchange

asset used in purchasing goods and services

Barter

direct trade of goods or services for other goods/services

Unit of account

basic measure of economic value

Store of value

asset that serves as a means of holding wealth

M1

sum of currency outstanding and balances held in checking accounts

M2

all the assets in M1 plus some additional assets that are usable in making payments but at greater cost or inconvenience than currency or checks

Bank reserves

cash or similar assets held by commercial banks for the purpose of meeting depositor withdrawals and payments

100 percent reserve banking

situation in which banks' reserves equal 100 percent of their deposits

Reserve-deposit ratio

bank reserves divided by deposits

Fractional-reserve banking system

banking system in which bank reserves are less than deposits so that the reserve-deposit ratio is less than 100 percent

Federal Reserve System (or the Fed)

central bank of the United States

Monetary policy

determination of the nation's money supply

Open-market purchase

purchase of government bonds from the public by the Fed for the purpose of increasing the supply of bank reserves and the money supply

Open-market sale

sale by the Fed of government bonds to the public for the purpose of reducing bank reserves and the money supply

Open-market operations

open-market purchases and open-market sales

Velocity

measure of the speed at which money changes hands in transactions involving final goods and services, or, equivalently, nominal GDP divided by the stock of money

Quantity equation

money times velocity equals nominal GDP

Financial intermediaries

Firms that extend credit to borrowers using funds raised from savers

Money

Any asset that can be used in making purchases

Medium of exchange

Asset used in purchasing goods and services

Barter

Direct trade of goods or services for other goods/services

Unit of account

Basic measure of economic value

Store of value

Asset that serves as a means of holding wealth

M1

Sum of currency outstanding and balances held in checking accounts

M2

All the assets in M1 plus some additional assets that are usable in making payments but at greater cost or inconvenience than currency or checks

Bank reserves

Cash or similar assets held by commercial banks for the purpose of meeting depositor withdrawals and payments

100% reserve banking

Situation in which banks' reserves equal 100% of their deposits

Reserve-deposit ratio

Bank reserves divided by deposits

Fractional-reserve banking system

Banking system in which bank reserves are less than deposits so that the reserve-deposit ratio is less than 100%

Federal Reserve System (or the Fed)

Central bank of the United States

Monetary policy

Determination of the nation's money supply

Open-market purchase

Purchase of government bonds from the public by the Fed for the purpose of increasing the supply of bank reserves and the money supply

Open-market sale

Sale by the Fed of government bonds to the public for the purpose of reducing bank reserves and the money supply

Open-market operations

Open-market purchases and open-market sales

Velocity

Measure of the speed at which money changes hands in transactions involving final goods and services, or, equivalently, nominal GDP divided by the stock of money

Quantity equation

Money times velocity equals nominal GDP