MacroEcon01 Ch.14 Money, Banking, and Financial Institutions. – Flashcards
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Medium of Exhange
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Money is a medium of exchange that is usable for buying and selling goods and services.
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Unit of Account
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A standard unit in which prices can be stated and the value of goods and services can be compared; one of the three functions of money.
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Store of Value
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An asset set aside for future use; one of the three functions of money.
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Liquidity
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The ease with which an asset can be converted quickly into cash with little or no loss of purchasing power. Money is said to be perfectly liquid, whereas other assets have a lesser degree of liquidity.
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Federal Reserve Notes
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Paper money issued by the Federal Reserve Banks.
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Token Money
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Bill or coins for which the amount printed on the currency bears no relationship to the value of the paper or metal embodied within it; for currency still circulating, money for which the face value exceeds the commodity value.
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Commercial Banks
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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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Near-monies
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Financial assets, the most important of which are noncheckable savings accounts, time deposits, and U.S. short-term securities and savings bonds, which are not a medium of exchange but can be readily converted into money.
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money is a "stock" of some item or group of items unlike?
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Income, for example, which is a "flow"
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M1
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is the narrowest definition of U.S. money supply.
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M1 consists of what two components?
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* Currency (coins and paper money) in the hands of the public. * All checkable deposits (all deposits in commercial banks and "thrift" or savings institutions on which checks of any size can be drawn).
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Government and government agencies supply...
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coins and paper money.
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Commercial banks ("banks") and savings institutions ("thrifts") provide...
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checkable deposits.
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Money, M1 =
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currency + checkable deposits
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M2 definition of money includes three categories of near-monies:
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*Savings deposits, including money deposit accounts *Small-denominated (less than $100,000) time deposts *Money market mutual funds held by individuals.
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Money, M2 =
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M1 + Savings deposits, including MMDAs + small-denominated (less than $100,000) time deposits + MMMFs held by individuals
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Legal Tender
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A nation's official currency (bills and coins). Payment of debts must be accepted in this monetary unit, but creditors can specify the form of payment, for example, "cash only" or "check or credit card only"
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what gives money its value?
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*Acceptability *Legal Tender *Relative Scarcity
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$V =
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1 / P
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Hyperinflation
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a very rapid rise in the price level; an extremely high rate of inflation.
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Price level stability of..
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2-3 percent annual inflation mainly necessitates intelligent management or regulation of the nation's money supply and interest rates (monetary policy).
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Monetary Authorities
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are the members of the Board of Governors of the Federal Reserve System (the "Fed").
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What is the Fed's major goal?
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to control the money supply. as well as assuring the stability of the banking system.
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Board of Governors
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The seven-member group that supervises and controls the money and banking system of the United States; the Board of Governors of the Federal Reserve System; the Federal Reserve Board.
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Federal Reserve Banks
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12 federal reserve banks, which blend private and public control, collectively serve as the nation's "central banks." These banks also serve as bankers bank. The 12 banks chartered by the U.S. government to control the money supply and perform other functions.
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The 12 Federal Reserve Banks are ...
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Quasi-Public Banks, which blend private ownership and public control.
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Federal Open Market Committee (FOMC)
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The 12-member group that determines the purchase and sale policies of the Federal Reserve Banks in the market for U.S. government securities.
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FOMC is made up of 12 individuals:
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* The seven members of the Board of Governors * The president of the New York Federal Reserve Bank. *Four of the remaining presidents of Federal Reserve Banks on a 1-year rotating basis.
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What 7 functions to the FED's perform?
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* Issuing Currency * Setting reserve requirements and holding reserves * Lending to financial institutions and serving as an emergency lender of last resort. * Providing for check collection * Acting as fiscal agent * Supervising banks * Controlling the money supply
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Discount Rate
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the interest rate that the federal bank charges banks and thrifts.
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Subprime Mortgage Loans
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high-interest-rate loans to home buyers with higher-than-average credit risk.
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Mortgage-backed securities
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are bonds backed by mortgage payments.
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Securitization
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the process of slicing up and bundling groups of loans, mortgages, corporate bonds, or other financial debts into distinct new securities. also referred to as the shadow banking system.
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Troubled Asset Relief Program (TARP)
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A 2008 Federal government program that authorized the U.S. Treasury to loan up to $700 billion to critical financial institutions and other U.S. firms that were in extreme financial trouble and therefore at high risk of failure.
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Moral Hazard
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is the tendency for financial investors and financial services firms to take on greater risks because they assume they are at least partially insured against losses.
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Financial Services Industry
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The broad category of firms that provide financial products and services to help households and businesses earn interest, receive dividends, obtain capital gains, insure against losses, and plan for retirement Includes commercial banks, thrifts, insurance companies, mutual fund companies, pension funds, investment banks, and securities firms.
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Quasi-Public Banks
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is a bank that is privately owned but govern-mentally (publicly) controlled; each of the U.S. Federal Reserve Banks.
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Bankers' Bank
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is a bank that accepts the deposits of and makes loans to depository institutions; in the United States, a Federal Reserve Bank.
