APMACRO UNIT4

Money

Anything that is generally accepted in payment for goods and services.

Barter System

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

Double Coincidence of Wants

A requirement in a barter system where each trader must have what the other wants.

Commodity Money

Money that has intrinsic value and can perform the functions of money (e.g., gold, silver, precious metals).

Fiat Money

Money that has no intrinsic value and is established as money by government regulation (e.g., paper money, coins).

Medium of Exchange

A function of money that allows it to be used for buying goods and services.

Unit of Account

A function of money that provides a measure of value for goods and services.

Store of Value

A function of money that allows it to maintain value over time for future purchases.

Wealth

A total collection of assets owned by an individual or entity.

Income

Flow of earnings received over a specific time period.

Liquidity

The ease with which an asset can be converted into cash or used as a medium of exchange.

M1

The category of money supply that includes currency in circulation, checkable bank deposits, and travelers checks.

M2

A category of money supply that includes M1 plus saving deposits, time deposits, and money market funds.

Monetary Base (MB)

The total amount of money in circulation and in the bank reserves.

Interest Rates

The cost of borrowing money or the return on savings; expressed as a percentage.

Real Interest Rate

The nominal interest rate adjusted for inflation.

Nominal Interest Rate

The stated interest rate before adjusting for inflation.

Demand-Pull Inflation

Inflation caused by excessive demand for goods and services exceeding supply.

Cost-Push Inflation

Inflation resulting from an increase in production costs leading to decreased supply.

Open Market Operations

The buying and selling of government securities by the Fed to control the money supply.

Federal Funds Rate

The interest rate at which banks lend reserves to each other overnight.

Fractional Reserve Banking

A banking system where banks hold a fraction of deposits as reserves and lend out the remainder.

Money Multiplier

The ratio of the amount of deposits created in a banking system to the amount of reserves held.

Loanable Funds Market

The market where the supply and demand for loans interact, affecting real interest rates.

Inflation

The rate at which the general level of prices for goods and services rises, eroding purchasing power.

Deflation

A decrease in the general price level of goods and services, typically associated with reduced consumer spending.

Monetary Policy

The process by which a central bank manages the money supply and interest rates to influence the economy.

Quantitative Easing

An unconventional monetary policy used by central banks to stimulate the economy by increasing the money supply.

Central Bank

A national bank that oversees the monetary system for a country, controlling the money supply and interest rates.

Hyperinflation

An extremely high and typically accelerating inflation rate, often exceeding 50% per month.

Currency Devaluation

A reduction in the value of a currency with respect to foreign currencies, often to boost exports.

Exchange Rate

The value of one currency for the purpose of conversion to another.

Budget Deficit

A financial situation where an entity spends more money than it brings in over a specific period.

Fiscal Policy

Government adjustments to spending levels and tax rates to influence the economy.

Barter Economy

An economic system that relies on direct exchange of goods and services without using money.

Liquidity Trap

A situation where low interest rates fail to stimulate borrowing or spending.

Quantitative Tightening

The process of reducing the money supply by selling off government securities.

Crowding Out

A situation where increased government spending leads to a reduction in private sector investment.

Loan-to-Value Ratio

The ratio of a loan to the value of the asset purchased, used by lenders to assess risk.

Hoarding

The practice of accumulating and holding excess amounts of cash or assets.

Base Rate

The interest rate set by a central bank as a minimum for lending to commercial banks.

Consumer Price Index (CPI)

A measure that examines weighted average prices of a basket of consumer goods and services.

Phillips Curve

A concept that depicts the inverse relationship between inflation and unemployment.

Negative Interest Rates

A rare economic condition where interest rates fall below zero, meaning borrowers are paid to take loans.