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35 Cards in this Set
- Front
- Back
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Money
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anything that serves as a medium of exchange
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medium of exchange
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anything that is widely accepted as a means of payment
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barter
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when goods are exchanged directly for other goods
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unit of account
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a consistent means of measuring the value of things
ie- $75 for this radio |
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store of value
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an item that holds value over time
ie- money, land, house, buildings |
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Commodity money
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money that has value apart from its use as money
i.e- mackerel, gold, silver Disadvantage: the quantity can fluctuate erratically -ie-gold was used as coins. then suddenly lots of them were discovered, causing inflation commodity money that can be grown caused even more fluctuations in quantity -tobacco was used as money, resulting in farmers growing lots of them. Another problem is the quality of the commodity money -horses were used as money. Bad horses were used to pay off debts while they saved good horses for other uses. |
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fiat money
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money that some authority, generally a government, has ordered to be accepted as a medium of exchange
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currency
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paper money and coins
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checkable deposits
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balances in checking accounts
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check
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a written order to a bank to transfer ownership of a checkable deposit
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money supply
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The total quantity of money in the economy at any one time
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liquidity
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the ease with which an asset can be converted into currency
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M1 (narrowly defined money supply)
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currency in circulation, checkable deposits, and traveler’s checks
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M2 (broadly defined money supply)
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includes M1 and other deposits such as small savings accounts (less than $100,000), as well as accounts such as money market mutual funds (MMMFs) that place limits on the number or the amounts of the checks that can be written in a certain period
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financial intermediary
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An institution that amasses funds from one group and makes them available to another
ie-insurance companies, banks |
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balance sheet
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a financial statement showing assets, liabilities, and net worth
assets listed on left. liabilities and net worth listed on right |
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assets
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anything of value
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liabilities
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obligations to other parties
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net worth
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assets - liabilities
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reserves
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bank assets held as cash in vaults and in deposits with the Federal Reserves. Interests are gained from putting cash in FED deposits but very little of it
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fractional reserve banking system
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the practice whereby banks retain only a portion of their customers' deposits as readily available reserves from which to satisfy demands for payment
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required reserves
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quantity of reserves banks are required to hold
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required reserve ratio
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the ratio of reserves to checkable deposits a bank must maintain
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excess reserves
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reserves in excess of required level
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loaned up
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when bank's excess reserves equal zero
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money is created when banks issue a ______
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loan
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excess reserves are ____ out
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loaned
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Federal Deposit Insurance Corporation (FDIC)
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If a commercial bank fails, the FDIC guarantees to reimburse depositors up to $250,000 (raised from $100,000 during the financial crisis of 2008) per insured bank, for each account ownership category.
This however causes more bank failures since this causes more officers of banks to take more risks and customers to not judge their decisions more carefully because of the security of the insurance. The FDIC can close banks whose net worth is negative. They then return the money to depositors using their insurance. |
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Illiquid banks
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cash less than liabilities
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insolvent banks
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Assets < liabilities
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leverage
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banks use little of their owners’ funds, instead using borrowed funds to leverage up their profits
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Federal funds
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rate banks charge one another for overnight reserve
loans. Effectively controlled by fed |
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Treasury bill rate
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yield on short-term U.S. government bonds – determined by supply and demand for these bonds
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CD rate
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timed-savings deposit rate set by banks
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prime rate
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benchmark rate set by banks for ‘best’ customers, other rates linked to this
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