| Term | Definition |
| federal funds market | the financial market that allows banks that fall short of reserve requirements to borrow funds from banks with excess reserves. |
| money supply | the total value of financial assets in the economy that are considered money. |
| 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. |
| checkable bank deposits | bank accounts on which people can write checks. |
| commodity money | a medium of exchange that is a good, normally gold or silver, that has intrinsic value in other uses. |
| required reserve ratio | the smallest fraction of deposits that the Federal Reserve allows banks to hold. |
| bank reserves | currency held by banks in their vaults plus their deposits at the Federal Reserve. |
| medium of exchange | an asset that individuals acquire for the purpose of trading for goods and services rather than for their own consumption. |
| discount window | an arrangement in which the Federal Reserve stands ready to lend money to banks. |
| 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. |
| liability | a requirement to pay income in the future. |
| 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. |
| 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%. |
| federal funds rate | the interest rate at which funds are borrowed and lent in the federal funds market. |
| monetary base | the sum of currency in circulation and bank reserves. |
| 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. |
| budget surplus | the difference between tax revenue and government spending when tax revenue exceeds government spending. |
| fiat money | a medium of exchange whose value derives entirely from its official status as a means of payment. |
| excess reserves | a bank's reserves over and above the reserves required by law or regulation |
| 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. |
| bank deposit | a claim on a bank that obliges the bank to give the depositor his or her cash when demanded. |
| discount rate | the interest rate the Fed charges on loans to banks. |
| 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. |
| budget deficit | the difference between tax revenue and government spending when government spending exceeds tax revenue. |
