Chapter 29 - The Monetary System

Vocabulary
Money


 * Definition: The set of assets in an economy that people regularly use to buy goods and services from other people.


 * What It Means:

Medium of Exchange


 * Definition: An item that buyers give to sellers when they want to purchase goods and services.


 * What It Means:

Unit of Account


 * Definition: The yardstick people use to post prices and record debts.


 * What It Means:

Store of Value


 * Definition: An item that people can use to transfer purchasing power from the present to the future.


 * What It Means:

Liquidity


 * Definition: The ease with which an asset can be converted into the economy's medium of exchange.


 * What It Means:

Commodity Money


 * Definition: Money that takes the form of a commodity with intrinsic value.


 * What It Means:

Flat Money


 * Definition: Money without intrinsic value that is used as money because of government decree.


 * What It Means:

Currency


 * Definition: The paper bills and coins in the hands of the public.


 * What It Means:

Demand Deposits


 * Definition: Balances in bank accounts that depositors can access on demand by writing a check.


 * What It Means:

Federal Reserve (Fed)


 * Definition: The central bank of the United States.


 * What It Means:

Central Bank


 * Definition: An institution designed to oversee the banking system and regulate the quantity of money in the economy.


 * What It Means:

Money Supply


 * Definition: The quantity of money available in the economy.


 * What It Means:

Monetary Policy


 * Definition: The setting of the money supply by policymakers in the central bank.


 * What It Means:

Reserves


 * Definition: Deposits that banks have received but have not loaned out.


 * What It Means:

Fractional-Reserve Banking


 * Definition: A banking system in which banks hold only a fraction of deposits as reserves.


 * What It Means:

Reserve Ratio


 * Definition: The fraction of deposits that banks hold as reserves.


 * What It Means:

Money Multiplier


 * Definition: The amount of money the banking system generates with each dollar of reserves.


 * What It Means:

Open-Market Operations


 * Definition: The purchase and sale of U.S. government bonds by the Fed.


 * What It Means:

Reserve Requirements


 * Definition: Regulations on the minimum amount of reserves that banks must hold against deposits.


 * What It Means:

Discount Rate


 * Definition: The interest rate on the loans that the Fed makes to banks.


 * What It Means:

Federal Funds Rate


 * Definition: The interest rate at which banks make overnight loans to one another.


 * What It Means: