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1051H Chapter 29
Gregory Mankiw Textbook Definitions. Jeffrey Milyo's Class
22
Economics
Undergraduate 1
11/05/2008

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Term
fiat money
Definition
money without intrinsic value that is used as money because of a government decree (paper money)
Term
currency
Definition
the paper bills and coins in the hands of the public
Term
Federal Reserve (Fed)
Definition
the central bank of the United States
Term
central bank
Definition
an institution designed to oversee the banking system and regulate the quantity of money in the economy
Term
money supply
Definition
the quantity of money available in the economy
Term
monetary policy
Definition
the setting of the money supply by policymakers in the central bank
Term
reserves
Definition
deposits that banks have received but have not loaned out
Term
fractional-reserve banking
Definition
a banking system in which banks hold only a fraction of deposits as reserves
Term
reserve ratio
Definition
the fraction of deposits that banks hold as reserves
Term
money multiplier
Definition
the amount of money the banking system generates with each dollar of reserves
Term
open-market operations
Definition
the purchase and sale of U.S. government bonds by the Fed
Term
reserve requirements
Definition
regulations on the minimum amount of reserves that banks must hold against deposits
Term
discount rate
Definition
the interest rate on the loans that Fed makes to banks
Term
money
Definition
the set of assets in an economy that people regularly use to buy goods and services from other people
Term
medium of exchange
Definition
an item that buyers give to sellers when they want to purchase goods and services
Term
unit of account
Definition
the yardstick people use to post prices and record debts
Term
store of value
Definition
an item that people can use to transfer purchasing power from the present to the future
Term
liquidity
Definition
the ease with which an asset can be converted into the economy's medium of exchange
Term
commodity money
Definition
money that takes the form of a commodity with intrinsic value (gold)
Term
three functions of money
Definition
medium of exchange, unit of account, and store of value
Term
fiat money
Definition
money without intrinsic value that is used as money because of government decree
Term
currency
Definition
the paper bills and coins in the hands of the public
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