ap macro unit 5 vocab

medium of exchange

the thing that you use to buy or exchange goods

standard of value (unit of account)

the thing is used to gauge the value of the other thing

store of value

use the money to preserve/store wealth

liquidity 

refers to the ease with which an asset can be turned into cash 

financial asset

a paper claim that entitles its buyer future income from the seller (loans, stocks, bonds, bank deposits)

bond

an IOU issued by the borrower that represents a promise to pay fixed interest payments at regular intervals and repay the principal on a specific date. basically a loan to a business or government

stock

a share of ownership in a corporation

mutual fund

financial intermediary that creates a collection of financial assets made up of different stocks and resells shares of it to individual investors. kind of like buying a sampler pack 

financial markets

facilitate flow of funds from lenders to borrowers

diversification

investing in several different assets

financial intermediaries

institutions that transform funds they gather into financial assets

bank deposits/demand deposits/checkable deposits

claims on a bank that obligate it to give funds back to a depositor on demand

loan

agreement to repay with interest 

bank reserves 

the deposits that a bank keeps on hand (this includes both required and excess) 

required reserves

the certain minimum fraction of deposits that banks are required to keep on reserve

excess reserves

any reserves excess of the required reserves

deposit expansion multiplier

1 / (reserve requirement)

monetary policy 

policies that increse or decrease the money supply

provide liquidity to financial institutions

provide loans to bankers

Fed’s Goals

to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rate

expansionary monetary policy 

policies that increase the money supply. the effect is lower interest rates which promote spending and investment that leads to increased employment 

contractionary monetary policy

policies that decrease the money supply. the effect is higher interest rates which prevent inflation and promote price stability

the reserve requirement

the percentage of bank deposits that must be held as reserves

the discount rate

rate that commercial banks must pay to borrow from the fed