Economics: Money

anything that is widely accepted in exchange for goods and services

money

paper money and coins

currency

the exchange of goods and services for other goods or services without the use of money

barter

3 functions of money

medium of exchange, a store of value, and a unit of account

something people acquire for the purpose of payment for goods and services

medium of exchange

something that can be saved and will hold its value relatively well over time

a store of value

a standard measure used to set prices and make economic calculations

unit of account

k

types of money

commodity, representative, and fiat

has value apart from its use as money

commodity money

has no value on its own but can be exchanged for something of value

representative money

value because the government has ordered that it be accepted in payment of debt

fiat money

examples of commodity money

dried fish, silver coins

an example of representative money

gold certificate

an example of fiat money

the U.S. dollar

what type of money does the U.S. have?

fiat money

the amount of money available for the purchase of goods and services

money supply

money in supply is also called what?

money in circulation

The Federal Reserve is also known as what?

the Central Bank

2 versions of the money supply tracked by the Federal Reserve

M1 and M2

a measure of the money supply that includes only the forms of money that are readily available to spend

M1

What 3 things does the M1 money supply include?

currency in circulation, checking accounts, and traveler’s checks

a measure of the money supply that includes M1 along with forms of money that are less easily converted to cash

M2

What 5 things does the M2 money supply include?

M1, savings account, time deposit account, money market account, and mutual funds

accepts deposits from individuals and firms and provides them with loans in addition to a wide variety of other services

commercial banks

an example of a commercial bank:

wells fargo

separated commercial banks and investment banks

Glass-Steagall Act

All national banks and most state banks are covered by the ___ ___ ___ ___ for ___

Federal Deposit Insurance Corporation (FDIC), $250,000

a depository institution that specializes in loans for the purchase of homes and other real estate. They offer checking accounts, CD’s, credit cards, and loans.

savings bank

depository institutions similar to savings banks that specialize in loans for the purchase of homes

Saving and Loans Association

Savings and Loans were insured by Federal Saving and Loans Insurance Corporation until all of this changed in 1989 when a number of S&L’s ___

failed

a not-for-profit depository institution owned by its members who are also its customers

credit unions

the % of deposits that banks must hold as reserves

reserve requirements

reserves over the required amount

excess reserves

risky loans

subprime mortgages

a variety of financial go-betweens that help savers’ money into the hands of borrowers for mutual gain

financial intermediaries

an example of a non-depository financial institution

insurance companies

borrow money from banks then loan it out at a higher rate

finance companies

getting money by selling stock

equity financing

getting money by borrowing it

debt financing

the actual rate of interest that a saver will receive and a borrower will pay

nominal interest rate

the nominal interest rate minus the expected rate of inflation

real interest rate

state and local government bonds

municipal bonds

minimum $25 redeemed after 5 years, fixed rate

US Savings bond

minimum $100 term 30 years and they can be resold, fixed and paid every 6 months

treasury bonds

minimum $100 term 2, 3, 4, 5, 7, 10 years, can be resold, fixed paid every 6 months

treasury notes

minimum $100 term 4, 13, 26, or 52 weeks, can be resold

treasury bills

a high-risk, high interest rate - corporate bond

junk bond

market in which money is lent for one year or more

capital market

a market in which money is lent for less than one year

money market

new assets are sold by their issuers

primary market

what does IPO stand for?

initial public offering

the first sale of a new stock is an ___

IPO

investors buy and sell financial assets that have already been purchased at least once

secondary markets

500 companies on the New York stock exchange, NASDAQ and over the counter

Standard and Poor 500 stock index

30 companies on the New York exchange

Dow Jones

tracks stock of U.S. and foreign corporation traded on the NASDAQ stock exchange

NASDAQ composite index

characterized by steady growth in stock prices

bull market

characterized by rapidly declining stock prices

bear market

The stock and bond markets are regulated by the federal ___ ___ ___ ___

Securities and Exchange Commission

what are the engine of economic growth?

savings

2 components of the financial system needed for an economy to work are:

savers and borrowers

what are pension plans?

retirement plans

a loan an investor makes to an organization or the government in exchange for interest payment over a specified term plus the principal due a the maturity date

bond

Money that is pooled from many investors and the company will invest it according to a specific strategy

mutual fund

when a company shares its’ profit with their shareholders by sending the shareholder a check

dividend

how easily something can be turned in to cash

liquidity

In 2007 the bubble peaked and the industry collapsed in

2008

In 2010, regulations were ___ and ___ created reform for Wall Street

tightened, Dodd-Frank