Macroeconomics: Chapter 12- Money and Banking – Flashcards
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Medium of Exchange
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Money that can be used for buying and selling goods and services.
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Unit of Account/Standard of Value
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Prices are quoted in dollars and cents
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Store of Value
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Money allows us to transfer purchasing power from present to future. It is the most liquid(spendable) of all assets, a convenient way to store wealth.
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Money Definition-M1(Primarily used as a medium of exchange)
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Currency and coin held by the nonbank public, demand deposits, other checkable deposits and traveler's checks.
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Money Definition-M2(used as a store of value)
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M1+ amount held in savings and small time deposits, certificates of deposit ( time accounts) less than $100,000, money market deposit accounts(MMDAs), noninstitutional money market mutual funds (MMMFs) and certain other short-term money market assets.
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Money Definition-M3((serve as a unit of account/standard of money)
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M1+M2+ a number of financial assets and instruments generally employed by large businesses and financial institutions.
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Depository Institutions
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Entities such as banks, savings and loan associations and credit unions that report to the Fed the value of their time and savings deposits, vault cash and transaction accounts such as checkable deposits.
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"token" money
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Intrinsic value is less than actual value
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Checkable Deposits
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Comerical banks: main source of checkable deposits for households and businesses Thrift Institutions: savings and loans, credit unions, mutual savings banks that also have checkable deposits.
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Qualification
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Currency and checkable deposits held by the federal government, Federal Reserve, or other financial institutions are not included in M1.
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Credit Cards
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Credit cards are not an acceptable form of money because they are short-term loans that may double the money supply if calculated.
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Money
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Debt
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Paper Money
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Debt of the Federal Reserve Banks and checkable deposits are liabilities of banks and thrifts because depositors own them.
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Value of Money
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Arises not from its intrinsic value, but its value in exchange for goods and services. Must be: -Acceptable as a medium of exchange -Currency is a legal tender of fiat money. It must be accepted by law. -Relative scarcity of money compared to goods and services will allow money to retain its purchasing power.
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Money Purchasing Power
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Determined by relative prices. Higher prices mean less pucharsing power and vice versa.
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Excessive Inflation
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Makes money worthless and acceptable. Example: Germany hyper inflation after WWI, which made the mark less than 1 billionth of its former value within a four-year period.
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Worthless Money
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Leads to the use of other currencies that are more stable or the barter exchange system.
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Transaction Demand(Dt)
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Money kept for purchases and will vary directly with GDP
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Asset Demand(Da)
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Money kept as a store of value for later use. Asset demand varies inversely with the interest rate, since that is the price of holding idle money.
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Total Demand
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Quantities of money demanded for assets plus that for transactions
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Money Definition-MZM(Money Zero Maturity)
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Focuses exclusively on monetary balances that are immediately available, at zero cost, for household and business transactions. Money MZM= M2- small($100,000 or less) time deposits + MMMFs held by businesses
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Savings and Loans Associations and Mutual Savings Banks
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Accept the deposits of households and businesses and then use the funds to finance housing mortages and to provide other loans.
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Credit Unions
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Accept deposits from and lend to "members," who usually are a group of people who work for the same company.
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Near-monies
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Highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readiliy converted into currency or checkable deposits.
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Near Monies(Savings Deposits, including money market deposits)
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A depositor can easily withdraw funds from a savings account at a bank or thrift or simly request that the funds be transferred from a savings account to a checkale account. A person can also withdraw funds from a money market deposit account(MMDA), which is an interest bearing account containing a variety of interest-bearing short term securities. MMDAs, have a minimum-balance requirement and a limit on how often a person can withdraw funds.
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Small(less than $100,000) time deposits
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Funds from time deposits become available at their maturity.
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Quasi-Publiv Banks
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Blend private ownership and public control.
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Fed Functions
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Issuing currency, setting reserve requirements and holding reserves, lending money to banks and thrifts, providing for check collection, acting as a fiscal agent, supervising banks, controlling the money supply.
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Discount Rate
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The interest rate that is given to banks and thrifts by the Fed.
