Unit 4 AP Macro

Asset

Anything of value owned that can be converted into cash.

Demand deposit

Money kept in checking accounts that can be withdrawn anytime.

Liquidity

How easily an asset can be converted into cash.

Securities

Financial instruments like stocks or bonds that represent ownership or debt.

Risk

The chance of losing money on an investment or financial decision.

Loans

Money borrowed that must be repaid with interest.

Rate of return

The percentage of profit earned on an investment.

Time value

The idea that money today is worth more than the same amount in the future.

Nominal interest rate

The stated interest rate without adjusting for inflation.

Real interest rate

The nominal interest rate minus inflation.

Medium of exchange

Something accepted as payment for goods and services.

Unit of account

A standard measure used to set prices and compare values.

Store of value

Something that maintains its value over time.

Currency

Paper money and coins in circulation.

Monetary unit

The standard unit of money for a nation.

Commodity money

Money that has intrinsic value, like gold or silver.

Representative money

Money backed by something of value, such as gold.

Gold standard

A system where money’s value is tied to a fixed amount of gold.

Fiat money

Money that has value because the government says so.

Money supply

The total amount of money available in an economy.

Monetary base

Currency in circulation plus bank reserves held at the central bank.

Depository institutions

Banks or credit unions that accept deposits and make loans.

Commercial banks

Financial institutions that offer checking, savings, and loans.

Savings and loan associations

Institutions that focus on home loans and savings accounts.

Credit unions

Member-owned financial cooperatives offering banking services.

Deposits

Money placed into a bank account.

Checks

Written orders instructing a bank to pay money from an account.

ATM

Automated Teller Machine used to withdraw or deposit money electronically.

Electronic funds transfer

The digital movement of money between accounts.

Withdrawals

Taking money out of a bank account.

Balance sheet

A financial statement showing assets, liabilities, and net worth.

Federal Reserve System

The central bank of the United States.

Reserve requirement

The fraction of deposits banks must hold in reserve.

Reserve ratio

The percentage of deposits a bank must keep on hand.

Excess reserves

Bank funds held beyond what is required by the reserve ratio.

Fractional reserve banking

A system where banks keep part of deposits and loan out the rest.

Money multiplier

The ratio showing how deposits can expand the money supply.

Speculative demand for money

Holding money to take advantage of future investment opportunities.

Monetary supply

The total quantity of money in circulation in an economy.

Money market

The market for short-term borrowing and lending of funds.

Monetary policy

Central bank actions to influence money supply and interest rates.

Central bank

A nation’s main monetary authority that manages money and credit.

Expansionary policy

Policy that increases money supply to boost economic activity.

Contractionary policy

Policy that reduces money supply to control inflation.

Open-market operations

The buying and selling of government securities by the Fed.

Federal funds rate

The interest rate banks charge each other for overnight loans.

Discount rate

The interest rate the Fed charges commercial banks for borrowing.

Loanable funds market

The market that matches savers and borrowers.

National saving

The total savings of households, businesses, and the government.

Investment spending

Expenditures on capital goods to produce future output.

Equilibrium interest rate

The rate where the supply and demand for loanable funds are equal.