Unit 4 AP Macro

Asset

A resource with economic value owned by an individual.

nominal intrest rate

interest rate paid actually

Real interest rate

Nominal interest rate - rate of inflation

Money

an asset used to purchase goods and services

Wealth

value of a household's accumulated savings

Loans

a leading agreement between an individual lender and an individual borrower

bonds

loans that pay interest

liquidity

how easily an asset can become cash

liability

requirement to pay money in the future

Interest Bearing asset

assets which pay interest

Financial asset

A paper claim that entities the buyer to future income from the seller

Speculation

An asset which has the risk of gaining but also losing value

The fisher effect

increase in inflation increases nominal interest rate by same amount

Expected inflation

rate at which prices are expected to rise

Unexpected inflation

consumers are unaware of an impending increase in market prices

Store of value

means of holding purchasing power over time

medium of exchange

an asset that individuals get for trading goods and services rather than consumption

circulation (currency)

flow of the money in an economy

Monetary base

Sum of currency in circulation and bank reserves

required reserves

minimum cash the bank can keep on its hand

excess reserves

cash that a bank has above required reserve

ample reserves

the way the bank makes sure there is a large amount of excess reserves

Bank liabilities

what the bank owes to others

Demand deposits

money deposited into an bank account which can be withdrawn on demand at any time

Money multiplier

ratio of money supply to monetary base

Federal reserve

central bank of the United States

money Market

where short term borrowing and lending of funds happens

Supply of Money

total amount of money in circulation

Transactions

Economic value is provided from one economics unit to the other

Traveler's check

a cheque used by people when traveling abroad to buy goods or exchange for forgiven currency

FOMC

federal open market committee, determines direction of money in the US.

Monetary policy

central banks use of changes in the quantity of money or interest rate to stabilize the economy.

Central bank

an institution that overseas and regulates the banking system and controls the monetary base.

price stability

when there are no major price fluctuations in the prices of consumer goods

Discount rate

interest rate fed charges on loans to banks

Reserve ratio

fraction of bank deposits the bank holds as reserves

Open market operations

a purchase or sale of the government debt by the federal reserve

securities

a financial instrument that has monetary value and can be traded

federal fund rate

the interest rate banks change other banks for loans

expansionary monetary policy

monetary policy which increases aggregate demand

contradictory monetary policy

monetary policy which reduces aggregate demand

loanable funds market

A hypothetical market that brings those who want to lend money and those who want to borrow money

Mortgages

Agreement that lender can take property if you are unable to repay specified amount and interest back

Closed economy

doesn't trade internationally

Open economy

trades with other countries