Macroeconomics Flashcards: Money, The Price Level, and Inflation

These flashcards cover essential vocabulary from the study of money in macroeconomics, focusing on definitions and functions related to money, banks, and the Federal Reserve.

Money

Any commodity or token that is generally acceptable as a means of payment.

Medium of Exchange

An object that is generally accepted in exchange for goods and services.

Barter

A system of exchange where goods and services are traded directly without money.

Unit of Account

An agreed measure for stating the prices of goods and services.

Store of Value

The function of money that allows it to be held for a time and later exchanged.

Currency

The notes and coins held by individuals and businesses.

Deposits

Money kept at banks and other depository institutions, available for payment.

M1

A measure of money that includes currency and demand deposits.

M2

A measure of money that includes M1 plus small-denomination time deposits.

Liquidity

The property of being instantly convertible into a means of payment with little loss of value.

Required Reserve Ratio

The minimum percentage of deposits that a bank must hold as reserves.

Federal Reserve System (the Fed)

The central bank of the US responsible for regulating depository institutions and controlling money supply.

Open Market Operations

The purchase or sale of government securities by the Fed to influence money supply.

Last Resort Loans

Loans made by the Fed to depository institutions that are short on reserves.

Economic Functions of Banks

Banks provide financial services to manage money and facilitate loans.

Credit Card

A card that allows the holder to obtain a loan but is not considered money.

Mobile Wallet

A smartphone or smartwatch app that stores and accesses credit card or debit card data.

Nominal Interest Rate

The current interest rate before adjusting for inflation.

Opportunity Cost of Holding Money

The nominal interest rate forgone by not holding interest-earning assets.

Money Market

A market in which the demand for money and supply of money interact to determine equilibrium.