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Definitions of the newest Mankiw (Special edition with financial crisis)Ch.29-30

money the set of assets in an economy that people regularly use to buy goods and services from other people
medium of exchange an item that buyers give to sellers when they want to purchase goods and services
unit of account the yardstick people use to post prices and record debts
store of value an item that people can use to transfer purchasing power from the present to the future
liquidity the ease with which an asset can be converted into the economy's medium of exchange
commodity money money that takes the form of a commodity with intrinsic value
fiat money money without intrinsic value that is used as money because of government decree
currency the paper banknotes and coins in the hands of the public
demand deposits balances in bank accounts that depositors can access on demand by using a debit card or writing a cheque
central bank an institution designed to regulate the quantity of money available in the economy
monetary policy the set of actions taken by the central bank in order to affect the money supply
open-market operations the purchase and sale of non-monetary assets from and to the banking sector by the central bank
European Central Bank (ECB) the overall central bank of the 12 countries of the European Money Union
Eurosystem the system is made up of the ECB plus the national central banks of each of the 12 countries compromising the European Monetary Union
Bank of England Central bank of the United Kingdom
Federal Reserve (Fed) the central bank of the united states
reserves deposits that banks have received but have not loaned out
fractional-reserve banking a banking system in which banks hold only a fraction of deposits as reserves
reserve ratio the fraction of deposits that banks hold as reserves
money multiplier the amount of money the banking system generates with each unit of reserves
outright open-market operations the outright sale or purchase of non monetary assets to or from the banking sector by the central bank without a corresponding agreement to reverse the transaction at a later date
repurchase agreement (repo) the sale of a non monetary-asset together with an agreement to repurchase it at a set price at a specific future date
money market the market in which the commercial banks lend money to one another on a short-term basis
refinancing rate the interest rate at which the European Central Bank lends on a short-term basis ti the euro area banking sector
repo rate the interest rate at which the Bank of England lends on short-term basis to the UK-banking sector
reserve requirements regulations on the minimum amount of reserves that a bank must hold against deposits
bank run when a substantial number of depositors suspect that a bank may go bankrupt and withdraw their deposits
quantity theory of money a theory asserting that the quantity of money available determines the price level and that the growth rate in the quantity of money available determines the inflation rate
nominal variables variables measured in monetary units
real variables variables measured in physical units
classical dichotomy the theoretical separation of nominal and real variables
monetary neutrality the proposition that changes in the money supply do not affect real variables
velocity of money the rate at which money changes hands
quantity equation the equation M(quantity of money)* V (velocity of money) = P (price of output) * Y (amount of output)
inflation tax the revenue the government raises by creating money
Fisher effect the one-for-one adjustment of the nominal interest rate to the inflation rate
shoe-leather costs the resources wasted when inflation encourages people to reduce their money holdings
menue costs the costs of changing prices
Created by: Medardus



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