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Unit 5 Vocab

Modules 22-27 in Krugman

TermDefinition
interest rate the price, calculated as a percentage of the amount borrowed, charged by lenders to borrowers for the use of their savings for one year.
liability a requirement to pay income in the future.
budget surplus the difference between tax revenue and government spending when tax revenue exceeds government spending.
budget deficit the difference between tax revenue and government spending when government spending exceeds tax revenue.
financial asset a paper claim that entitles the buyer to future income from the seller. Loans, stocks, bonds, and bank deposits are types of financial assets.
bank deposit a claim on a bank that obliges the bank to give the depositor his or her cash when demanded.
capital inflow the net inflow of funds into a country; the difference between the total inflow of foreign funds to the home country and the total outflow of domestic funds to other countries.
checkable bank deposits bank accounts on which people can write checks.
fiat money a medium of exchange whose value derives entirely from its official status as a means of payment.
medium of exchange an asset that individuals acquire for the purpose of trading for goods and services rather than for their own consumption.
commodity money a medium of exchange that is a good, normally gold or silver, that has intrinsic value in other uses.
money supply the total value of financial assets in the economy that are considered money.
bank reserves currency held by banks in their vaults plus their deposits at the Federal Reserve.
monetary base the sum of currency in circulation and bank reserves.
discount window an arrangement in which the Federal Reserve stands ready to lend money to banks.
excess reserves a bank's reserves over and above the reserves required by law or regulation
money multiplier the ratio of the money supply to the monetary base; indicates the total number of dollars created in the banking system by each $1 addition to the monetary base.
required reserve ratio the smallest fraction of deposits that the Federal Reserve allows banks to hold.
reserve requirements rules set by the Federal Reserve that set the minimum reserve ratio for banks. For checkable bank deposits in the United States, the minimum reserve ratio is set at 10%.
T-account a simple tool that summarizes a business's financial position by showing, in a single table, the business's assets and liabilities, with assets on the left and liabilities on the right.
discount rate the interest rate the Fed charges on loans to banks.
federal funds market the financial market that allows banks that fall short of reserve requirements to borrow funds from banks with excess reserves.
federal funds rate the interest rate at which funds are borrowed and lent in the federal funds market.
open-market operation a purchase or sale of U.S. Treasury bills by the Federal Reserve, undertaken to change the monetary base, which in turn changes the money supply.
Created by: fratrik
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