Introduction to Money and the Economy

This set of vocabulary flashcards covers concepts from macroeconomics including the functions of money, banking systems, central bank operations, and the quantity theory of money formulas.

Medium of exchange

An item buyers give Sellers to Purchase G&S

unit of account

The measure People use to Set Prices & Keep track of money

Store of value

Something you can save loday & use later because it keeps it's value

Bank Run

Many People Withdraw money at the same time, which causes Money Supply to fall

Open market operation

Centeral bank buys or Sells government bonds

Centeral bank leading

Centeral bank lend to banks

Term Auction facility

Set amount to lend

Reserves

deposits bank receieved but haven't loaned out

fractional reserve banking

System which banks hold a fraction

Reserve ratio

Percentage of deposits that banks Keep

Commodity money

Mency that has its own value

Fiat money

Money that has no value on its own

Cryptocurrencies

Electronic medium of exchange

Currency

Bills Coins

Demand deposits

Banalnce in account

Centeral bank

Controls amount of money in the economy

Money Supply

Money available in the economy

Monetary Policy

Control of Money Supply to help manage the economy

Money Multiplier (MM)

The amount of new money banks can create Per $1$; formula is $MM = \frac{1}{B}$

Reserve requirements

Affect lending & Money Supply

Interest on reserves

Reduces lending & Money Supply

Velocity ($V$)

The rate at which money changes hands

Quantity theory of money

Concept that Money determines inflation rate

Nominal GDP (NGDP)

$$P \times Y$$

Velocity Formula

$$V = \frac{P \times Y}{M}$$

Value of Money

$\frac{1}{P}$ where $P$ is the level of Prices

Real GDP (Y)

$$Y = \frac{M \times V}{P}$$

Inflation rate formula

$$\frac{\text{New } P - \text{Old } P}{\text{Old } P} \times 100$$