Chapter 13 Roles of Money

Vocabulary flashcards for Chapter 13 Roles of Money.

Medium of Exchange

Used to buy goods and services.

Unit of Account

Common measure for value.

Store of Value

Maintains value over time.

Barter

Direct exchange of goods/services.

Double Coincidence of Wants

Both parties must want what the other offers.

Liquidity

How easily an asset can be converted into cash without losing value.

Fisher Equation

Nominal Interest Rate = Real Interest Rate + Inflation Premium

Transactions (Demand for Money)

To buy goods/services.

Precautionary (Demand for Money)

For unexpected needs.

Speculative (Demand for Money)

To take advantage of future investment opportunities.

Expansionary Monetary Policy

Lower interest rates, increase money supply; Stimulates economic activity.

Contractionary Monetary Policy

Raise interest rates, decrease money supply; Slows inflation/economy.

M1

Currency + demand deposits

M2

M1 + savings + time deposits

M3

M2 + large time deposits, CDs, others

Required Reserves

Reserve Requirement × Total Reserves

Excess Reserves

Total Reserves – Required Reserves

Money Multiplier

1 / Reserve Requirement

Banking Regulations Objectives

Ensuring bank stability, preventing bank failures and runs, protecting depositors, limiting risky financial behavior

Banking Regulations

Set by authorities such as the Federal Reserve, FDIC, and the government.