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Money
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Any commonly accepted good that acts as a medium of exchange, a measure of value, and a store of value.
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Fiat Money
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Paper money that is not backed by or convertible into any good.
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Currency
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Coins and paper money.
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Liquidity
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The degree to which an asset can be exchanged for money.
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Money supply
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Typically, M1 money. The supple of currency, demand deposits, and traveler's checks used in transactions.
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M1 Money
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The most immediate form of money. It includes currency, demand deposits, and traveler's checks.
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M2 Money
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M1 money plus less immediate forms of money, such as savings accounting, money market mutual fund accounts,repurchase agreements, and small denomination time deposits.
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Velocity of Money
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The average number of times per year each dollar is used to transact an exchange.
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Equation of Exchange
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MV=PQ
The quantity of money times its velocity equals the quantity of goods and services produced times their prices.
The quantity of money times its velocity equals the quantity of goods and services produced times their prices.
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Quantity Theory of Money
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P=MV/Q
The equation specifying the direct relationship between the money supply and prices.
The equation specifying the direct relationship between the money supply and prices.
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Transactions Demand for Money
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The quantity of money demanded by households and businesses to transact their buying and selling of goods and services.
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Liquidity Trap
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The liquidity trap occurs when the interest rate (reflecting expected returns on the bond market) are so low that all additions to the money supply are held in cash.
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Fractional Reserve System
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A banking system that provides people immediate access to their deposits but allow banks to hold only a fraction of those deposits in reserve.
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Balance Sheet
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The bank's statement of liabilities (what it owes) and assets (what it owns).
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Legal Reserve Requirement
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The percentage of demand deposits banks and other financial intermediaries are required to keep in cash reserves.
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Financial Intermediaries
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Firms that accept deposits from savers and use those deposits to make loans to borrowers.
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Potential Money Multiplier
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The increase in the money supply that is potentially generated by a change in demand deposits.
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Excess Reserves
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The quantity of reserves held by a bank in excess of the legally required amount.
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Glass-Steagall Act
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An act passed by Congress in 1933 that prohibited commercial banks from collaborating with full service brokerage firms or participating in investment banking activities.
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Bank Note
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A promissory note, issued by a bank, pledging to redeem the note for a specific amount of gold or silver. The terms of redemption are specified on the note.
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Nationally Chartered Bank
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A commercial bank that receives its charter from the comptroller of the currency and is subject to federal law as well as the laws of the state in which it operates.
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State Chartered Bank
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A commercial bank that receives its charter or licence from a state government and is subject to the laws of that state.
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Federal Reserve System
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The central bank of the United States.
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Federal Open Market Committee
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The Fed's principal decision making body, charged with executing the Fed's open market operations.
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Discount Rate
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The interest rate the Fed charges banks that borrow reserves from it.
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Countercyclical Monetary Policy
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Policy directives used by the Fed to moderate swings in the business cycle.
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Reserve Requirement
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The minimum amount the reserves the Fed requires a bank to hold, based on a percentage of the bank's total deposit liabilities.
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Open Market Operations
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The buying and selling of government bonds by the Federal Open Market Committee.
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Federal Funds Market
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The market in which banks lend and borrow reserves from each other for very short periods of time, usually overnight.
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Federal Funds Rate
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The interest rate on loans made by banks in the federal funds market.
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Margin Requirement
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The maximum percentage of a stock that can be borrowed from a bank or any other financial institution, with the stock offered as collateral.
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