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VocabularyEdit

Money

  • Definition: The set of assets in an economy that people regularly use to buy goods and services from other people.
  • What It Means:

Medium of Exchange

  • Definition: An item that buyers give to sellers when they want to purchase goods and services.
  • What It Means:

Unit of Account

  • Definition: The yardstick people use to post prices and record debts.
  • What It Means:

Store of Value

  • Definition: An item that people can use to transfer purchasing power from the present to the future.
  • What It Means:

Liquidity

  • Definition: The ease with which an asset can be converted into the economy's medium of exchange.
  • What It Means:

Commodity Money

  • Definition: Money that takes the form of a commodity with intrinsic value.
  • What It Means:

Flat Money

  • Definition: Money without intrinsic value that is used as money because of government decree.
  • What It Means:

Currency

  • Definition: The paper bills and coins in the hands of the public.
  • What It Means:

Demand Deposits

  • Definition: Balances in bank accounts that depositors can access on demand by writing a check.
  • What It Means:

Federal Reserve (Fed)

  • Definition: The central bank of the United States.
  • What It Means:

Central Bank

  • Definition: An institution designed to oversee the banking system and regulate the quantity of money in the economy.
  • What It Means:

Money Supply

  • Definition: The quantity of money available in the economy.
  • What It Means:

Monetary Policy

  • Definition: The setting of the money supply by policymakers in the central bank.
  • What It Means:

Reserves

  • Definition: Deposits that banks have received but have not loaned out.
  • What It Means:

Fractional-Reserve Banking

  • Definition: A banking system in which banks hold only a fraction of deposits as reserves.
  • What It Means:

Reserve Ratio

  • Definition: The fraction of deposits that banks hold as reserves.
  • What It Means:

Money Multiplier

  • Definition: The amount of money the banking system generates with each dollar of reserves.
  • What It Means:

Open-Market Operations

  • Definition: The purchase and sale of U.S. government bonds by the Fed.
  • What It Means:

Reserve Requirements

  • Definition: Regulations on the minimum amount of reserves that banks must hold against deposits.
  • What It Means:

Discount Rate

  • Definition: The interest rate on the loans that the Fed makes to banks.
  • What It Means:

Federal Funds Rate

  • Definition: The interest rate at which banks make overnight loans to one another.
  • What It Means:

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