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| any item sellers accept and buyers use to pay for goods and services |
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| a standard unit in which prices can be stated and the value of goods and services can be compared |
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| an asset stored aside for future use |
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| the ease with which an asset can be converted into cash with little or no loss of purchasing power - money is 100% liquid |
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| most narrow definition of the money supply; equal to currency in hands of public plus checkable deposits in banks and thrifts |
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| paper money issued by the Federal Reserve Banks |
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| bills/coins for which the amount printed on the currency bears no relationship to the value of the paper/metal it is made with |
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| any deposit in a commercial bank or thrift against which a check can be written |
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| a firm that engages in the business of banking (accepts deposits, offers checking accounts, and makes loans) |
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| a savings and loan association, mutual savings bank, or credit union |
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| financial assets, including noncheckable savings accounts, time deposits, and U.S. short-term securities and savings bonds; aren't a M.O.E., but can be converted into money |
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| Broader definition of money supply; equal to (M1 + noncheckable savings accounts + small time deposits (<100K) + individual MMMF balances) |
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| a deposit in a CB or thrift on which interest payments are received |
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| Money market deposit account (MMDA) |
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| Bank- and thrift-provided interest-bearing accounts that contain a variety of short-term securities; have minimum balance and limited withdrawal |
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| Interest-earning deposit in a CB/thrift which can be withdrawn w/out penalty after a certain period of time |
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| Money market mutual fund (MMMF) |
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| Interest-bearing accounts offered by investment firms; pool depositors' funds for purchase of short-term securities |
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| A nation's official currency (bills & coins); payment of debts must be accepted in this monetary unit |
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| U.S. central bank; consists of Board of Governors of Fed. Reserve and 12 Federal Reserve Banks; controls money supply |
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| 7-member group that supervises and controls the money & banking system of the US |
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| the 12 banks chartered by the U.S. government to control the money supply; act simultaneously as central bank, quasi-public banks, and bankers' banks |
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| Federal Open Market Committee (FOMC) |
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Definition
| 12-member committee that determines purchase/sale policies of the FRBs in the U.S. gov't securities market |
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| High-interest rate loans to home buyers with above-average credit risk |
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| Mortgage-backed securities (MBS) |
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| Bonds that represent claims to all or part of the monthly mortgage payments from the pools of mortgage loans made by lenders to borrowers |
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| Process of aggregating many individual financial debts (mortgages, student loans, etc.) into a pool and then issuing new securities backed by the pool; holders are entitled receive the debt payments |
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| Tendency for financial firms to take greater risks under the idea that they are at least partially insured in case of loss |
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| Troubled Asset Relief Program (TARP) |
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Definition
| 2008 Federal gov't program which authorized the US Treasury to loan up to $700B to critical financial institutions in danger of failure |
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Term
| Financial services industry |
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Definition
| Broad category of firms that provide financial products/services to help households+businesses earn interest, receive dividends, obtain capital gains, insure against losses, and plan for retirement. Includes banks, thrifts, insurance companies, mutual fund companies, pension funds, investment banks, and securities firms |
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| Wall Street Reform and Consumer Protection Act |
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Definition
| Federal law giving the Federal Reserve System authority to regulate all large financial institutions, created an oversight council to look for growing risk in the financial system, established a process for the Federal gov't to sell off the assets of large failing financial institutions, provided Federal regulatory oversight of asset-backed securities, and created a financial consumer protection bureau within the Fed |
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Term
| Fractional-reserve banking system |
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Definition
| A system in which commercial banks and thrift institutions hold less than 100% of their checkable-deposit liabilities as required reserves |
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| A statement of assets, liabilities, and net worth of a firm or individual at a given time |
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| The currency a bank has in its vault and cash drawers |
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| The funds that banks/thrifts must deposit with the FRB (or store as vault cash) to meet legal reserve requirements; is a fixed % of checkable-deposits |
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| Fraction of checkable deposits that a bank must hold as reserves in a FRB or in its own bank vault |
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| Amount by which a bank/thrift's actual reserves exceed its required reserves |
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| The funds a bank has on deposit at the FRB in its district |
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| The interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reserves |
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| The multiple of its excess reserves by which the banking system can expand checkable deposits and thus the money supply by making new loans (or buying securities); equal to 1/reserve requirment; m=1/R |
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Definition
| A central bank's changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment, and economic growth |
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| Payment made for the use of money (or borrowed funds) |
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| Transactions demand for money |
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| The amount of money people want to hold for use as a medium of exchange (to make payments); varies directly with nominal GDP |
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| The amount of money people want to hold as a store of value; varies inversely with the interest rate |
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| The sum of the transactions demand for money and the asset demand for money |
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Definition
| The buying/selling of US gov't securities by the FRBs for the purposes of carrying out monetary policy |
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| The fraction of checkable deposits that a bank must hold as reserves in a FRB or in its own bank vault |
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Definition
| The interest rate that the FRBs charge on the loans they make to CBs/thrifts |
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| The monetary policy procedure used by the Fed, in which CBs anonymously bid to obtain loans being made available by the Fed as a way to expand reserves in the banking system |
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| The interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reserves |
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| Expansionary monetary policy |
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Definition
| Federal Reserve System actions to increase the money policy, lower interest rates, and expand real GDP; "easy money" policy |
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| Restrictive monetary policy |
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Definition
| Federal Reserve System actions to reduce the money supply, increase interest rates, and reduce inflation; "tight money" policy |
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Definition
| The benchmark interest rate that banks use as a reference point for a wide range of loans to businesses and individuals |
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Definition
| A modern monetary rule proposed by economist John Taylor that would stipulate exactly how much the Fed should change real interest rates in response to divergences of real GDP from potential GDP and actual rates of inflation from a target rate of inflation |
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Definition
| The idea that monetary policy may be more successful in slowing expansions and controlling inflation than in extracting the economy from severe recession |
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Definition
| A situation in a severe recession in which the Fed's injection of additional reserves into the banking system has little or no additional positive impact on lending, borrowing, investment, or aggregate demand |
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