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Econ 201 Final Terms
Sui Luo Econ 201 University of Washington
23
Economics
Undergraduate 2
11/06/2012

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Term
Medium of Exchange:
Definition
An item 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 Values:
Definition
An item people can use to transfer purchasing power from the present to the future
Term
Money
Definition
Assets that people regularly use to buy goods and services from other people
Term
Commodity Money:
Definition
Takes the form of a commodity with intrinsic value. Ex. Gold Coins
Term
Fiat Money:
Definition
Money without intrinsic value because of government decree. Ex. the US dollar
Term
money supply (or money stock):
Definition
The quantity of money available in the economy

Money Supply = Currency + Deposits
Money Supply = (Money Multiplier) * (Bank Reserves)
Term
Currency:
Definition
The paper bills and coins in the hands of the public
Term
Demand Deposits:
Definition
Balances in bank accounts that depositors can access on demand by writing a check
Term
Central Bank:
Definition
An institution that oversees the banking system and regulates the money supply
Term
Monetary Policy:
Definition
The setting of the money supply by policy makers in the central bank
Term
Federal Reserve (Fed):
Definition
The central bank of the US
Term
fractional reserve banking system:
Definition
Banks keep a fraction of deposits as reserves, and use the rest to make loans
Term
Reserve Requirements:
Definition
Regulation on the minimum amount of reserves that banks must hold against deposits
Term
Reserve Ratio, R
Definition
Is the fraction of deposits banks hold as reserves and the total reserves as a percentage of total deposits
Term
The Money Multiplier:
Definition
The amount of money the banking system generates with each dollar of reserves

Money Multiplier = 1/R
Term
Bank Capital:
Definition
The resources a bank obtains by issuing equity to its owners

Bank Capital = Bank Assets – Bank Liabilities
Term
Leverage:
Definition
The use of borrowed funds to supplement existing funds for investment purposes
Term
Capital Requirement:
Definition
A government regulation that specified a minimum amount of capital intended to ensure banks will be able to pay off depositors and debts
Term
Open-Market Operations (OMOs):
Definition
The purchase and sale of us government bonds by the Fed
Term
Discount Rate
Definition
The interest rate on loans the Fed makes to bank
Term
Reserve Requirements:
Definition
Regulations on the minimum amount of reserves banks must hold against deposits
Term
Federal Funds Rate:
Definition
Interest rate on the loans from the borrowed reserves
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