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A system in which commercial banks and thrift institutions hold less than 100 percent of their checkable deposit liabilities as reserves of currency held in bank vaults or as deposits at the central bank

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Fractional reserve banking system

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A statement of the assets, liabilities, and net worth of a firm or individual at some given time

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balance sheet

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Currency a bank has on hand in its vault and cash drawers

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vault cash

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The fraction of checkable deposits that each commercial bank or thrift institutions must hold as reserves at its local Federal Reserve Bank or in its own bank vault also called reserve requirement

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reserve ratio

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Any item sellers generally accept and buyers generally use to pay fr a good or service money a convient means of exchanging goods and services without angaging in barter

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Medium of exchange

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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 3 functions of money

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unit of account

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an asset set aside for future use one of the 3 functions of money

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store of value

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the degree to which an asset can be converted quickly into cash with little or no oss of purchasing power money is said to be perfectly liquid whereas other assets have lesser degrees of liquidity

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liquidity

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The most narrowly defined money supply, equal to currency in the hands of the public and the checkable deposits of commercial banks and thrift institutions

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M1

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more broadly defined money supply, equal to M1 plus non checkable savings accounts (including money market deposit accounts) small time deposits (deposits less than 100K) and individual money smart mutual fund balances

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M2

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paper money issued by the Federal Reserve banks

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Federal Reserve Notes

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Bills 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 (intrinsic)

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Token Money

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any deposit in a commercial bank or thrift institution against which a check may be written

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Checkable deposits

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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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Commercial banks

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a savings and lean association, mutual savings bank, or credit union

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Thrift institutions

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Financial assets that are not themselves a medium of exchange but that have extremely high liquidity and this can be readily converted into money Includes non checkable savings accounts, time deposits, and short term US government securities lys savings bonds

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Near monies

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A deposit in a commercial bank or thrift institutions on which interest payments are received generally used for saving rather than daily transactions component of the M2 money supply

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Savings account

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MMDAs, Interest bearing accounts offered by commercial banks and thrift institutions that invest deposited funds into a variety of short term securities Depositors mat write checks against their balances, but there are minimum glance requirements as well as limits on the frequency of check writing and withdrawals

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Money Market Deposit Account

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an interest earning deposit in a commercial bank or thrift institution that the depositor can withdrawal without penalty after the end of a specified period

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Time deposits

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mutual funds that invest in short term securities depositors can write checks in minimum amounts or more against their accounts

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Money market mutual fund

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any form of currency that by law must be accepted by creditors (lenders) for the settlement of a financial debt a nations official currency is legal tender within its own borers

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legal tender

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US central bank, consisting of the Board of Governors of the Federal Reserve and the 12 Federal Reserve Banks, which controls the lending activity of the nations banks and thrifts, and thus the money supply Referred to as the Fed

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Federal Reserve System

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The 7 member group that supervises and controls the money and banking system of the US The Federal Reserve Board

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Board of Governors

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The 12 member group within the Federal Reserve System that decides US Monetary policy and how it is executed through open market operations( in which fed buys and sells Us government securities to adjust the money supply)

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Federal Open Market Committee

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Bonds that represent claims to all or part of the months mortgage payments from the pools of mortgage loans made by lenders to borrowers to help them purchase residential property

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Mortgage backed securities

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the process of aggregating many individual financial debts, such a mortgages or student loans, into a pool and then issuing new securities (typically bonds) backed by the pool the holders of the new securities are entitled to receive the debt payments made on the individual financial debts in the pool

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Securitization

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TARP, 2008 federal government program that authorized the Us treasury to loan up to 700 billion to critical financial institutions and other US firms that were in extreme financial trouble and therefore a high risk of failure

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Troubled Asset Relief Program

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the possibility that individuals or institutions will change their behavior as the result of a contract or agreement ex- a bank whose deposits are insured against losses may make risker loans and investments

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Moral hazard

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The broad category of firms that provide financial products and serves to help households and businesses earn interest, receive dividends, obtain capital gains, insure against losses, and plan for retirement includes commercial banks, thrift institutions, insurance companies, mutual fund companies, pension funds, investment banks, and securities funs

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Financial Services industry

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lat that gave authority to the Federal Reserve System to regulate all large financial institutions created an oversight council to look for growing risk to the financial system, assets of large financial institutions, provided federal regulatory oversight of asset backed securities, and created a financial consumer protection bureau within the Fed

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Wall Street Reform and Consumer Protection Act

Macroeconomics McConnell Brue Flynn Chapter 14-15 – Flashcards

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