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Money & Banking
AP Macroeconomics Unit 4 Vocabulary
| Term | Definition |
|---|---|
| Bonds | A certificate of debt issued by a company or a government to an investor |
| Contractionary Monetary Policy | Fed reduces the supply of money |
| Crowding-Out Effect | The rise in interest rates and the resulting decrease in investment spending that is caused by increased government borrowing |
| Demand Deposit | A deposit in a commercial bank against which checks may be written (aka Checkable Deposit) |
| Discount Rate | The interest rate that the Fed charges on loans made to commercial banks |
| Excess Reserves | The amount by which a bank's actual reserves exceed its required reserves |
| Federal Funds Rate (FFR) | The interest rate banks charge one another on overnight loans made out of their excess reserves. The FFR is targeted by the Fed through open-market operations. |
| Fractional Reserve Banking | A banking system in which banks hold only a fraction of deposits as required reserves and can lend some of the money deposited by their customers to other borrowers. |
| Liquidity | The ease with which an asset can be converted - quickly - into cash with little or no loss of purchasing power. |
| Loanable Funds Market | The market in which the demand for private investment and the supply of household savings intersect to determine the equilibrium interest rate. |
| M1 | Currency and checkable deposits |
| M2 | M1 + savings deposits, money-market deposits, mutual funds, and small-time deposits |
| M3 | M1 + M2 + large-time deposits |
| Monetary Policy | The Fed's manipulation of the supply of money aimed at raising or lowering interest rates to stimulate or contract the level of aggregate demand |
| Money | The sum of the transaction demand and the asset demand for money. Inversely related to the interest rate |
| Money Multiplier | 1/ RRR |
| Quantity Theory of Money Equation | MV=PQ |
| Stock | A certificate that represents a claim to, or share of, the ownership of a firm |
| Fiat Money | Money with no intrinsic value, it is backed by the public's trust in the government |
| Transaction Demand | The amount of money held in order to make transactions |
| Asset Demand | The amount of money demanded as an asset |
| Reserve Ratio | The fraction of the bank's total deposits that are kept on reserve |
| Open Market Operations | A tool of monetary policy that involves the Fed buying and selling bonds to and from commercial banks and the general public |
Created by:
Mrs.Hidalgo
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