Chp 14- Economics
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Federal Reserve System
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privately owned, publicly controlled central bank of USA
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Federal Reserve notes
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paper currency
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barter economy
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moneyless economy that relies on trade
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commodity money
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money that has an alternative use as an economic good, or commodity
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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 silver or gold coins
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monetary unit
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standard unit of currency
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medium of exchange
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something accepted by all parties as payment for goods and services
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measure of value
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common measuring stick that can be used to express worth in terms that most individuals understand
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store of value
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quality that allows purchasing power that can be saved until needed
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demand deposit account
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account from which funds can be removed by writing a check and without having to gain prior approval from depository institution
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M1
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component of money supply relating to money's role as a medium of exchange -coins, currency, travelers checks -DDA=demand deposit accounts - checking accounts
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M2
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component of money supply relating to money's role as a store of value -savings accounts -time deposits -money market funds -M1 money
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state bank
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bank that receives its operating charter from a state government
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legal tender
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fiat currency that must be accepted in payment for debts
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national bank
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privately owned bank that receives its operating charter from the federal government
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national currency
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currency backed by government bonds and issued by commercial banks in National Banking System
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gold certificates
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paper currency backed by gold placd on deposit with US treasury
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silver certificates
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paper currency backed by silver dollars and bullion placed on reserve with Treasury
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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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bank run
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rush by depositors to withdraw their funds from a bank before it failed
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bank holiday
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brief period during which every bank in the country was required to close
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fractional reserve system
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banks are required to keep only a portion of their total deposits in the form of legal reserves
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legal reserves
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consist of coins and currency that banks hold in their vaults, plus deposits at the fed
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reserve requirement
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formula used to compute the amount of depository institutions required reserves
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member bank reserve
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deposit a member bank keeps 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 belonging to the federal reserve system
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monetary policy
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changes in money supply to affect availability and cost of credit
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interest rate
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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 purchase of US 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
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bank holding companies
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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 customers
