Economics Chapter 10-11 – Flashcards
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Money
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anything that serves as a medium of exchange, a unit of account, and a store of value
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medium of exchange
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anything that is used to determine value during the exchange of goods and services
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barter
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the direct exchange of one set of goods or services for another (common in Asia, Africa, and Latin America)
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unit of account
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a means of comparing the values of goods and services
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store of value
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something that keeps its value if it is stored rather than used
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currency
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coins and paper bills used as money
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six characteristics of currency
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durability, portability, divisibility, uniformity, limited supply, and acceptability
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commodity
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is an object
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commodity money
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objects that have value in themselves and that are also used as money (ex. cattle, salt)
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representative money
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objects that have value because the holder can exchange them for something else of value
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fiat money
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"legal tender" money that has value because the government has ordered that it is an acceptable means to pay debts
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bank
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an institution for receiving, keeping, and lending money
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the Federalists believed
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the country needed a strong central government to establish economic and social order (centralized banking system)
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the Antifederalists favored
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leaving most powers in the hands of the states
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national bank
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a bank chartered, or licensed, by the national government
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bank run
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widespread panic in which great numbers of people try to redeem their paper money
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greenback
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paper currency issued during the Civil War
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gold standard
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a monetary system in which paper money and coins are equal to the value of a certain amount of gold
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Federal Reserve System
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(Fed) the nation's central banking system
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central bank
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bank that can lend to other banks in times of need
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member bank
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bank that belongs to the Fed
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Federal Reserve note
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the national currency we use today in the United States
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Great Depression
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the sever economic decline that began in 1929 and lasted for more than a decade
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Federal Deposit Insurance Corporation
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(FDIC) the government agency that insures customer deposits if a bank fails
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money supply
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all the money available in the United States economy
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M1
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represents money that people can gain access to easily and immediately to pay for goods and services (liquidity ad deposits in checking accounts)
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liquidity
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the ability to be used as, or directly converted, to cash
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demand deposit
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the money in checking accounts
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M2
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can't be used as cash directly, but can be converted to cash fairly easily. Also called near money (deposits in savings accounts and money market mutual funds)
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money market mutual fund
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a fund that pools money from small savers to purchase short-term government and corporate securities
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fractional reserve banking
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a banking system that keeps only a fraction of funds on hand and lends out the remainder
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default
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failure to pay back a loan
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mortgage
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a specific type of loan that us used to buy real estate
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credit cards
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a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services
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interest
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price paid for the use of borrowed money
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principal
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the amount of money borrowed
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commercial banks
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offer checking services, accept deposits, and make loans. They have the largest role in the economy of any type of bank
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credit unions
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cooperative lending associations for particular groups, usually employees of a specific firm or government agency
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finance companies
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make installment loans to consumers
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Debit cards
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a card used to withdraw money (PIN #)
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creditor
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person or institution to whom money is owed
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investment
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the act of redirecting resources from being consumed today so that they may create benefits in the future; the use of assets to earn income or profit
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financial system
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the system that allows the transfer of money between savers and borrowers
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financial assets
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claim on the property or income of a borrower
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financial intermediary
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institution that helps channel funds from savers to borrowers
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mutual funds
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fund that pools the savings of many individuals and invests this money in a variety of stocks, bonds, or other financial assets
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pension
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income that a retiree receives after working a certain number of years or reaching a certain age
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diversification
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spreading out of investments to reduce risk
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portfolios
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a collection of financial assets
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prospectus
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an investment report to potential investors
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return
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the money an investor receives above and beyond the sum of money initially invested
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bonds
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lower-risk investments basically loans that represent debt that the government or a corporation must repay to an investor
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coupon rate
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the interest rate that a bond issuer will pay to a bondholder
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maturity
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the time at which payment to a bondholder is due
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par value
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the amount that an investor pays to purchase a bond and that will be repaid to the investor at maturity
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yield
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the annual rate of return on a bond if the bond were held to maturity
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two firms for bonds are
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Standard & Poor's and Moody's
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savings bonds
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low-denomination bond issued by the United States government
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municipalities
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government units with corporate status
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municipal bonds
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a bond issued by a state or local government or municipality to finance such improvements as highways, state buildings, libraries, parks, and schools
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corporate bond
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a bond that a corporation issues to raise money to expand its business
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Securities and Exchange Commission
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(SEC) an independent agency of the government that regulates financial markets and investment companies
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junk bond
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a lower-rated, potentially higher-paying bond
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certificate of deposit
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(CD) most common form of investment
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capital market
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market in which money is lent for periods longer than a year (long-term CD's and corporate or govern. bonds)
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money market
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market in which money is lent for periods of less than a year (short-term CD's, treasury bills, and money market mutual funds)
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primary market
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market for selling financial assets that can only be redeemed by the original holder (ex. savings bonds and small certificates of deposit)
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secondary market
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market for reselling financial assets that provides liquidity to investors and helps in stock
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share
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portion of a stock
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equities
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claims of ownership in a corporation
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benefits of buying stock
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dividends and capital gains
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capital gain
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the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the seller
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capital loss
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the difference between a lower selling price and a higher purchase price resulting in a financial loss to the seller
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stock split
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the division of a single share of stock into more than one share
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stockbroker
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a person who links buyers and sellers of stock
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brokerage firm
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a business that specializes in trading stocks
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stock exchanges
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a market for buying and selling stock
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New York Stock Exchange
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NYSE is the country's larges and most powerful exchange
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OTC market
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an electronic marketplace for stocks and bonds
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Nasdaq
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(The National Association of Securities Dealers Automated Quotations) is the American market for OTC securities
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futures
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contracts to buy or sell at a specific date in the future at a price specified today
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options
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contracts that give investors the choice to buy or sell stock and other financial assets
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call option
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the option to buy shares of stock at a specified time in the future
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put option
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the option to sell shares of stock at a specified time in the future
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bull market
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a steady rise in the stock market over a period of time
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bear market
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a steady drop in the stock market over a period of time
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the Dow
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(The Dow Jones Industrial Average) is an index that shows how certain stocks have traded
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S& P 500
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Standard & Poor's 500 is an index that shows the price changes of 500 different stocks
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Great Crash
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the collapse of the stock market in 1929
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speculation
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the practice of making high-risk investments with borrowed money in hopes of getting a big return
