Econ unit 5 terms

Investment Spending Examples: Spending on capital goods like machinery and infrastructure.

Calculate Private Saving: Disposable income minus consumption.

Government Budget Balance: Difference between government revenues and expenditures.

National Saving: Sum of private and public saving.

Diversification: Spreading investments to reduce risk.

Commodity Money: Money with intrinsic value, like gold.

Commodity-Backed Money: Money redeemable for a physical commodity.

Fiat Money: Money with no intrinsic value, backed by government decree.

Shifters of Money Demand vs. Money Supply: Factors affecting money demand and supply, such as interest rates and economic conditions.

M1 vs. M2 (and how to calculate): M1 includes cash and checking deposits; M2 includes M1 plus savings deposits and other near money.

Near Money: Financial assets easily convertible to cash.

Money as a “Store of Value”: Money retains value over time for future use.

Loanable Funds Market: Market for borrowing and lending funds.

When do Banks “Create” Money?: Through fractional reserve banking and making loans.

Calculating Interest: Use $Y×(1+r)\$Y \times (1 + r) to find interest.

Calculate Reserve Ratio: Reserves divided by total deposits.

Calculate Excess Reserves: Total reserves minus required reserves.

Calculate Liabilities of a Bank: Sum of the bank's obligations.

Calculate Change in Money Supply: Affected by central bank actions and economic conditions.

Monetary Base and Money Supply: Monetary base is currency and reserves; money supply includes various forms of money in circulation.

Federal Reserve Districts: 12 regional banks in the U.S.

Monetary Policies: Central bank actions to manage the economy.

Order of Command When a Bank Needs Money: Borrow from other banks or the central bank.

Discount Rate: Interest rate charged by central banks to commercial banks.

Federal Funds Rate: Interest rate for overnight interbank loans.

Increase Money Supply: Through lowering reserve requirements or interest rates, and open market purchases.

Interest Rates Change in the Money Market: Shifts due to supply and demand for money.

Crowding Out: Government borrowing leading to reduced private investment.