Unit 4 Macroeconomics

Fiscal Policy – Government use of taxes and spending to influence the economy.

Medium of Exchange – Something accepted as payment for goods and services (like money).

Unit of Account – A way to measure and compare the value of goods and services.

Store of Value – A way to save purchasing power for future use.

M1 Money – Very liquid money: cash, coins, and checking deposits.

M2 Money – M1 plus savings accounts, small time deposits, and money market funds.

Interest Rate – The cost of borrowing money, or the return on saving.

Credit Score – A number that represents a person's creditworthiness.

Treasury Bond – A long-term government-issued debt security.

Mortgage – A loan used to buy a house or property.

Fractional Reserve Banking – Banks keep part of deposits and lend the rest.

The Federal Reserve – The central bank of the U.S., controlling money supply.

Bank Failure – When a bank can't meet its obligations and collapses.

Required Reserve – The minimum amount of deposits a bank must keep on hand.

Excess Reserve – Money a bank can lend out, beyond required reserves.

Monetary Policy – The Fed’s control of money supply and interest rates to stabilize the economy.

Open Market Operations – The Fed buys/sells government bonds to affect money supply.

The Discount Rate – The interest rate the Fed charges banks for loans.

The Reserve Requirement – The rule on how much money banks must keep in reserves.

Monetarism – The theory that the money supply is the key to economic health.

Fisher Equation – Real Interest Rate = Nominal Rate − Inflation Rate.

Quantity Theory of Money (MV=PQ) – Money supply times velocity equals price level times output.

Money Multiplier (1 / Reserve Requirement) – Shows how much money can be created from a deposit.

T-Account – A tool to show changes in a bank's assets and liabilities.