Chapter 34: Money, Banking, and Financial Institutions

Vocabulary flashcards covering the definition of money, its primary functions, and the specific components of the M1 and M2 money supplies.

Money

Anything that is generally accepted as payment for goods or services or in the repayment of debts.

Currency

A type of money consisting of paper bills and metal coins.

Medium of Exchange

A function of money used to pay for goods and services, which promotes economic efficiency by minimizing transaction costs.

Barter Economy

An economy without money where goods and services are exchanged directly for other goods and services.

Transaction Cost

The time spent trying to exchange goods or services.

Double Coincidence of Wants

A requirement in a barter economy where an individual must find someone who has the specific good they want and who also wants the specific good they offer.

Unit of Account

A function of money used to measure and compare the value of goods and services in an economy.

Store of Value

A function of money as a repository of purchasing power that can be saved and spent at a later time.

$$M1$$

A narrow measure of the money supply that includes currency, traveler's checks, demand deposits, and other checkable deposits, totaling approximately $3,760.3\,\text{billion}$.

Federal Reserve Notes

Paper money issued by the Federal Reserve System, which serves as the U.S. central bank.

Checkable Deposits

Any deposit in a commercial bank or thrift institution against which a check may be written.

Demand Deposit

A type of bank account where funds can be withdrawn at any time without giving the bank prior notice.

Traveler's Checks

Pre-printed, fixed-amount checks used instead of hard currency, typically denominated in major world currencies like U.S. dollars.

$$M2$$

A broad measure of the money supply consisting of $M1$ plus savings deposits (including money market deposit accounts), small-denominated time deposits, and money market mutual funds, totaling approximately $14,478.8\,\text{billion}$.

Liquidity

The relative ease and speed with which an asset can be converted into a medium of exchange.