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| An item buyers give to sellers when they want to purchase goods and services |
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| The yardstick people use to post prices and record debts |
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| An item people can use to transfer purchasing power from the present to the future |
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| Assets that people regularly use to buy goods and services from other people |
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| Takes the form of a commodity with intrinsic value. Ex. Gold Coins |
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| Money without intrinsic value because of government decree. Ex. the US dollar |
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| money supply (or money stock): |
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The quantity of money available in the economy
Money Supply = Currency + Deposits
Money Supply = (Money Multiplier) * (Bank Reserves) |
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| The paper bills and coins in the hands of the public |
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| Balances in bank accounts that depositors can access on demand by writing a check |
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| An institution that oversees the banking system and regulates the money supply |
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| The setting of the money supply by policy makers in the central bank |
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| The central bank of the US |
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| fractional reserve banking system: |
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Definition
| Banks keep a fraction of deposits as reserves, and use the rest to make loans |
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| Regulation on the minimum amount of reserves that banks must hold against deposits |
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| Is the fraction of deposits banks hold as reserves and the total reserves as a percentage of total deposits |
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The amount of money the banking system generates with each dollar of reserves
Money Multiplier = 1/R |
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The resources a bank obtains by issuing equity to its owners
Bank Capital = Bank Assets – Bank Liabilities |
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| The use of borrowed funds to supplement existing funds for investment purposes |
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| A government regulation that specified a minimum amount of capital intended to ensure banks will be able to pay off depositors and debts |
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| Open-Market Operations (OMOs): |
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Definition
| The purchase and sale of us government bonds by the Fed |
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| The interest rate on loans the Fed makes to bank |
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| Regulations on the minimum amount of reserves banks must hold against deposits |
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Definition
| Interest rate on the loans from the borrowed reserves |
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