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Economics Today - 16th ed. - Ch. 15 Key Terms
Ch. 15
38
Economics
Undergraduate 2
10/25/2012

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Term
money
Definition
Any medium that is universally accepted in an economy both by sellers of goods and services as payment for those goods and services and by creditors as payments for debts.
Term
medium of exchange
Definition
Any item that sellers will accept as payment.
Term
barter
Definition
The direct exchange of goods and services for other goods and services without the use of money.
Term
unit of accounting
Definition
A measure by which prices are expressed; the common denominator of the price system; a central property of money.
Term
stores of calue
Definition
The ability to hold value over time; a necessary property of money.
Term
standard of deferred payment
Definition
A property of an item that makes it desirable for use as a means of settling debts maturing in the future; an essential property of money.
Term
liquidity
Definition
The degree to which an asset can be acquired or disposed of without much danger of any intervening loss in nominal value and with small transaction costs.
Term
What is the most liquid asset?
Definition
Money.
Term
transaction deposits
Definition
Checkable and debitable account balances in commercial banks and other types of financial institutions, such as credit unions and savings banks. Any accounts in financial institutions from which you can easily transmit debit-card and check payments without restrictions.
Term
fiduciary monetary system
Definition
A system in which money is issued by the government and its value is based uniquely on the public's faith that the currency represents command over goods and services.
Term
money supply
Definition
The amount of money in circulation.
Term
transactions approach
Definition
A method of measuring the money supply by looking at money as a medium of exchange.
Term
liquidity approach
Definition
A method of measuring the money supply by looking at money as a temporary store of value.
Term
M1
Definition
The money supply, measured as the total value of currency plus transaction deposits plus traveler's checks not issued by banks.
Term
depository institutions
Definition
Financial institutions that accept deposits from savers and lend funds from those deposits out at interest.
Term
thrift institutions
Definition
Financial institutions that receive most of their funds from the savings of the public. They include savings banks, savings and loan associations, and credit unions.
Term
transfer's checks
Definition
Financial instruments obtained from a bank or nonbanking organization and signed during a purchase that can be used in payment upon a second signature by the purchaser.
Term
M2
Definition
M1 plus (1) savings deposits at all depository institutions, (2) small-denomination time deposits, and (3) balances in retail money market mutual funds.
Term
central bank
Definition
A banker's bank, usually an official institution that also serves as a bank for a nation's government treasury.
Term
What kind of banks regulate commercial banks?
Definition
Central banks.
Term
financial intermediation
Definition
The process by which financial institutions accept savings from businesses,households, and governments and lend the savings to other businesses, households, and governments.
Term
financial intermediaries
Definition
Institutions that transfer funds between ultimate lenders (savers) and ultimate borrowers.
Term
asymmetric informations
Definition
Information possessed by one party in a financial transaction but not by the other party.
Term
adverse selection
Definition
The tendency for high-risk projects and clients to be overrepresented among borrowers.
Term
moral hazard
Definition
The possibility that a borrower might engaged in riskier behavior after a loan has been obtained.
Term
liabilities
Definition
Amounts owed, the legal claims against a business or household by nonowners.
Term
assets
Definition
Amounts owned, all items to which a business or household can legally claim.
Term
The Fed
Definition
The Federal Reserve System; the central bank of the United States.
Term
lender of last resort
Definition
The Federal Reserve's role as an institution that is willing and able to lend to a temporarily illiquid bank that is otherwise in good financial condition to prevent the bank's illiquid position from leading to a general loss of confidence in that bank or in others.
Term
fractional reserve banking
Definition
A system in which depository institutions hold reserves that are less than the amount of total deposits.
Term
reserves
Definition
In the U.S. Federal Reserve System, deposits held by Federal Reserve district banks for depository institutions plus depository institution's vault cash.
Term
reserve ratio
Definition
The fraction of transactions deposits that banks hold as reserves.
Term
balance sheet
Definition
A statement of the assets and liabilities of any business entity, including financial institutions and the Federal Reserve System. Assets are what is owned, liabilities are what is owed.
Term
open market operations
Definition
The purchase and sale of existing U.S. government securities (such as bonds) in the open private market by the Federal Reserve System.
Term
money multiplier
Definition
A number that, when multiplied by a change in reserves in the banking system, yields the resulting change in the money supply.
Term
potential money multiplier
Definition
The reciprocal of the multiplier ratio, assuming no leakages into currency. It is equal to 1 divided by the reserve ratio.
Term
bank run
Definition
Attempt by many of a bank's depositors to convert transactions and time deposits into currency out of fear that the bank's liabilities may exceed its assets.
Term
Federal Deposit Insurance Corporation (FDIC)
Definition
A government agency that insures the deposits held in banks and most other depository institutions. All U.S. banks are insured this way.
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