Econ Final Review Money
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Medium of Exchange
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An item buyers give to sellers when they want to purchase goods or services.
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Unit of Account
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A measurement people use to post prices and record debt.
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Store of Value
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An item people can use to transfer purchasing power from the present to the future.
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Commodity Money
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Items that take the form of a commodity with intrinsic value.
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Fiat Money
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Money without intrinsic value, used as money because of a government decree.
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Transaction Demand
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Money used as a medium of exchange - determined by nominal GDP.
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Asset Demand
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Money people want to hold as a store of value.
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Total Money Demand
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Assets + Transactions
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Money Supply
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Quantity of money available in the economy.
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Currency
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Paper bills and coins in the hands of the (non-bank) public.
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Checkable Deposits
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Balances in bank accounts that depositors can access on demand by writing a check.
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Acceptability
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One reason why money is valuable. Currency and checkable deposits are accepted as a medium of exchange.
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Legal Tender
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One reason why money is valuable. Paper money is a valid and legal means of payment of any debt contracted in dollars.
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Relative Scarcity
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One reason why money is valuable. Depends on supply and demand - the greater quantity, the less value it has.
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Central Bank
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An institution that oversees the banking system and regulates the money supply.
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Monetary Policy
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The setting of the money supply by policy makers in the central bank.
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Federal Reserve
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The central bank of the United States.
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Board of Governors
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The seven member group heading the Federal Reserve.
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14
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The number of years served in a term by each member of the Board of Governors.
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12
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The number of Regional Fed Banks located around the United States.
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Federal Open Market Committee
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Decides the monetary policy
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Fractional Reserve Banking System
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Banks keep a fraction of deposits as reserves, and use the rest to make loans.
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Reserve Requirements
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Regulations on the minimum amount of reserves that banks must hold against deposits
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Reserve Ratio
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Fraction of deposits that banks hold as reserves, i.e. total reserves as a percentage of total deposits.
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T-account
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A simplified accounting statement that shows a banks assets and liabilities.
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Money Supply def. 2
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Currency + Deposits
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Money Multiplier
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The amount of money the banking system generates with each dollar of reserves. 1/R
