Unit 4 Test Macro

Who is on the 100$ bill?

Benjamin Franklin

Who is on the 50 dollar bill?

Ulysses S. Grant

Who is on the 20 dollar bill?

Andrew Jackson

Who is on the 10 dollar bill?

Alexander Hamilton

Who is on the 5 dollar bill

Abraham Lincoln

Who is on the 2 dollar bill

Thomas Jefferson

Who is on the 50 cent coin?

John F. Kennedy

Who is on the dime

Franklin D. Roosevelt

Who is on the 1000 dollar bill

Cleveland

Who is on the 100000 bill

Wilson

E Pluribus Unum means

out of many, one

How much is a 50 cent coin now

3-8 dollars

The Barter System

a system of exchange in which goods or services are traded directly for other goods or services without the use of money.

Commodity money

something that performs the function of money and has intrinsic value

fiat money

something that serves as money but has no other value or uses

Liquidity

the ease with which an asset can be converted into a medium of exchange

Money

anything that is generally accepted as payment for goods and services

Personal finance

The way individuals and families budget, save, and spend

Bonds

loans, or IOUs, that represent debt that the government, business, or individual must repay to the lender

Stocks

Represents ownership of a corporation and the stockholder is often entitled to a portion of the profit

Present value

The current worth of some future amount of money

Transaction demand for money

people hold money for everyday transactions

asset demand for money

people hold money since it is less risky than other assets

Demand deposits

money deposited in a commercial bank in a checking account

required reserves

The percent that banks must hold by law

Excess reserves

The amount that the bank can loan out

Balance Sheet

a record of a bank's assets, liabilities, and net worth

Discount rate

The interest rate on the loans that the Fed makes to banks

open market operations

when the FED buys or sells government bonds (securities)

Currency

the paper bills and coins that are used to buy goods and services

medium of exchange

what people trade for goods and services

Barter

involves individuals trading a good they already have or providing a service in exchange for something they want

double coincidence of wants

in which each party in an exchange transaction has what the other party desires

commodity-backed money

money that can be exchanged for a commodity at a fixed rate

unit of account

the measure in which prices are quoted

store of value

a means for holding wealth

checkable deposits

deposits in bank accounts from which depositors may make withdrawals by writing checks

M1

the money supply measure composed of currency and checkable deposits

M2

includes everything in M1 as well as savings accounts and small time deposits, MMDAs, and some other items

Reserves

the portion of bank deposits that are set aside and not loaned out

fractional reserve banking

occurs when banks hold only a fraction of deposits on reserve

Bank run

occurs when many depositors attempt to withdraw their funds at the same time

required reserve ratio

the portion of deposits that banks are required to keep on reserve

excess reserves

Any reserves above the required level

Moral Hazard

occurs when a party that is protected from risk behaves differently from the way it would behave if it were fully exposed to the risk

Federal funds

deposits that private banks hold on reserve at the Federal Reserve

Federal funds rate

the interest rate at which banks make overnight loans to one another

Discount loans

loans from the Federal Reserve to private banks

open market operations

involve the purchase or sale of bonds by a central bank

quantitative easing

the targeted use of open market operations in which the central bank buys securities specifically targeted in certain markets

Financial system

the set of institutions that connect savers with borrowers

Financial intermediary

an institution that transforms the funds it gathers from many individuals into financial assets (for the saver) and liabilities (for the borrower); the financial intermediary that people have the msot experience with is a bank, which converts the savings anf other deposits of many depositors into loans for borrowers

Asset

Some item of values thats expected to provide the holder some future benefit; factorues are an asset beacuse they can be used to produce goods that provide incone to a firm in the future, and a bond is an asset to a bondholder because itll give income in the future

Liabilities

Requirements to pay money in the future, a loan is a liability for the person who takes out a lon, but an asset to the person who loaned

real asset

(sometimes called a physical asset) a claim on a tangible object that gives the owner the right to use it as they wish. A house is a real asset that its owner can sell or rent out, and a factory is a real asset that a business can use to earn profits.

financial asset

a contractual claim to something of value; modern economies have four main types of financial assets: bank deposits, stocks, bonds, and loans.

financial risk

when there is any uncertainty about the future value of an asset; for example, if you don't know how many lime smoothies you can buy with the money in your savings account next week, the value of your savings account has risk, because inflation can reduce its value.

bank deposits

(also called demand deposits) money kept in a bank, like checking accounts; we call these "demand deposits" because banks are usually required to provide access to the money in those accounts immediately on request (in other words, on demand).

return

the profit made on an asset, usually expressed as a percentage; for example, a stock that is purchased for [$100] and sold for [$110] has a return of [10%].

stock

a slice of ownership in a company; if you own one share of a company that has a total of 100 shares, you own [1/100^\text{th}] of that company. Stocks derive their value from their ability to appreciate and the payment of dividends.

nominal interest rate

the interest rate that you earn (or pay) on a loan; this is the amount you see on a sign advertising interest rates.

real interest rate

the nominal interest rate adjusted for inflation; this is the effective interest rate that you earn (or pay).

Fisher effect

the idea that an increase in expected inflation drives up the nominal interest rate, which leaves the expected real interest rate unchanged

currency in circulation

money outside of banks, such as money in your wallet or your couch cushions; the money in your pocket is currency in circulation, but your money in your bank account is outside of circulation.

currency in vaults

(also called reserves) money that banks keep within the bank, outside of circulation

money supply

the total amount of money in an economy that can carry out the transactions motive; in most countries, the money supply is either the monetary aggregate [M1] or [M2].

monetary aggregates

an overall measure of the money supply that includes different forms of money which are categorized based on liquidity; the most commonly used monetary aggregates are [M1] and [M2].

monetary base

(also called high powered money and in some countries [M0]) the sum of currency in circulation and bank reserves held in vaults; only part of the monetary base (currency in circulation) is counted in the money supply.

money market

a graphical model showing the interaction of the demand for money and the money supply

money supply

a curve that shows the relationship between the amount of money supplied and the interest rate; because the central bank controls the stock of money, it does not vary based on the interest rate, and the money supply curve is vertical.

money demand

a curve showing the relationship between the quantity of money demanded and the interest rate; the money demand curve is downward sloping

liquidity preference

the amount of wealth that people want to keep in the form of cash in order to use it as a medium of exchange

transactions motive

The desire to hold money in order to buy things

monetary policy

the use of the money supply to influence macroeconomic aggregates, such as output, inflation, and unemployment

dual mandate

the two objectives of most central banks, to 1) control inflation and 2) maintain full employment

contractionary monetary policy

monetary policy designed to decrease aggregate demand, decrease output, and increase unemployment

expansionary monetary policy

monetary policy designed to increase aggregate demand, increase output, and decrease unemployment;

open market operations

the buying and selling of securities, such as bonds, by a central bank to change the money supply

Federal Reserve

(nicknamed the "Fed") the central bank of the United States of America; the Federal Reserve is responsible for maintaining the health of the financial system and conducting monetary policy.

interest on reserves (IOR)

interest on the deposits that commercial banks hold within the central bank

the market for loanable funds

a hypothetical market that shows how loans from savers are allocated to borrowers who have investment projects

savings-investment spending identity

an equation that demonstrates that investment spending and savings are always equal to each other; if there is [$100{,}000] in investment in an economy, that [$100{,}000] has to come out of savings.

budget surplus

when taxes collected are more than the amount of government spending, the difference between taxes and government spending is a budget surplus

budget deficit

when taxes collected are less than the amount of government spending, the difference between taxes and government spending is a budget deficit

budget balance

when the amount of taxes collected is exactly equal to the amount of government spending

public saving

the difference between taxes collected and government spending; when there is a budget surplus public saving is positive, but when there is a budget deficit public saving is negative.

disposable income

income that is left for consumption after taxes are paid; if your income is [$100] and you pay [$5] in taxes, your disposable income is [$95].

private saving

what is left of disposable income after consumption is taken out; if your disposable income is [$95] and you spend [$70], you have [$25] left in savings.

national savings

the total amount of private saving and public saving

closed economy

an economy which does not allow international trade or the movement of financial assets into or out of a country

open economy

an economy which does allow international trade or the movement of financial assets into or out of a country

foreign funds

financial assets, such as money, that come into a country from another country; if a resident of Florin buys a bond from the government of Guilder, that purchase represents foreign funds coming into Guilder.

domestic outflow of funds

financial assets that leave a country; If a resident of Florin buys a bond from the government of Guilder, that purchase represents domestic funds flowing out of Florin.

capital inflows

financial capital coming into a country; capital inflows are equal to the inflow of foreign funds minus the outflow of domestic funds.

rate of return

percentage gain or loss on an investment or the increase or decrease in value over time; for example, if a project costs [$100] to do but will generate [$108] in sales, its rate of return is 8%.

demand for loanable funds

a hypothetical curve that shows the willingness to borrow money to fund investment projects; as the interest rate decreases, the quantity of loans demanded will increase.

supply of loanable funds

a hypothetical curve that shows the willingness to save money and put it into a financial intermediary.