Chapter 14 Vocabulary
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Federal Reserve System (FED)
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Privately owned, publicly controlled central bank of the United States
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Federal Reserve Note
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Paper currency issued by the Fed in use today
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Barter Economy
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Moneyless economy that relies on trade or barter
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Commodity Money
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Money that has an alternative use as an economic good
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Fiat Money
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Money by government decree
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Specie
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Money in the form of gold or silver coins
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Monetary Unit
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Standard unit of currency in a country's money supply
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Medium of Exchange
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Money or other substance generally accepted as payment for goods and services
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Measure of Value
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A function of money that allows it to serve as a common way to express value
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Store of Value
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A function of money that allows people to preserve value for future use
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Demand Deposit Account (DDA)
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Account from which funds can be removed by writing a check and without having to gain prior approval from the depository institution
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M1
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Component of the money supply relating to money's role as a medium of exchange
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M2
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Component of the money supply relating to money's role as a store of value
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State Bank
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Bank that received its charter from the state in which it operates
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Legal Tender
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Fiat currency that must be accepted for payment by decree of the government
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National Bank
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Commercial bank chartered by the National Banking System
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National Currency
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Currency backed by government bonds and issues by commercial banks in the National Banking System
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Gold Certificate
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Paper currency backed by gold and issued between 1863 and 1934
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Silver Certificate
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Paper currency backed by, and redeemable for, silver from 1878 to 1968
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Central Bank
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Bank that can be lend money to other banks in times of need
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Bank Run
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Sudden rush by depositors to withdraw all deposited funds, generally in anticipation of bank failure or closure
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Bank Holiday
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Brief period during which all banks or depository institutions are closed to prevent bank runs
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Fractional Reserve System
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System requiring financial institutions to set aside a fraction of their deposits in the form of reserves
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Legal Reserves
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Currency and deposits used to meet the reserve requirement
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Reserve Requirement
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Formula used to compute the amount of a depository institution's required reserves
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Member Bank Reserve (MBR)
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Reserve kept by member banks at the Fed to satisfy reserve requirements
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Excess Reserves
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Financial institution's cash, currency, and reserves not needed for reserve requirements
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Member Bank
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Bank belonged to the Federal Reserve System
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Monetary Policy
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Actions by the Federal Reserve System to extend or contract the money supply in order to affect the cost and availability of credit
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Interest Rate
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The price of credit to a borrower
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Easy Money Policy
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Monetary policy that results in lower interest rates and greater access to credit
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Tight Money Policy
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Monetary policy that results in higher interest rates and restricted access to credit
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Open Market Operations
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Sales or purchases is U.S. Government securities by the Fed
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Discount Rate
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Interest rate that the Federal Reserve System charges on loans to the nation's financial institutions
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Prime Rate
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Lowest rate of interest that banks charge their best customers
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Quantity Theory of Money
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Hypothesis that the supply of money directly affects the price level over the long run
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Currency
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Paper component of the money supply, today consisting of Federal Reserve notes
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Coins
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Metallic forms of money such as pennies, nickels, dimes, and quarters
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Bank Holding Company
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Company that owns and controls one or more banks
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Regulation Z
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Provision extending truth-in- lending disclosures to consumers
