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Principles of Macroeconomics 2e

Key Terms

Principles of Macroeconomics 2eKey Terms

item of value that a firm or an individual owns
asset–liability time mismatch
customers can withdraw a bank’s liabilities in the short term while customers repay its assets in the long term
balance sheet
an accounting tool that lists assets and liabilities
bank capital
a bank’s net worth
literally, trading one good or service for another, without using money
coins and currency in circulation
the coins and bills that circulate in an economy that are not held by the U.S Treasury, at the Federal Reserve Bank, or in bank vaults
commodity money
an item that is used as money, but which also has value from its use as something other than money
commodity-backed currencies
dollar bills or other currencies with values backed up by gold or another commodity
credit card
immediately transfers money from the credit card company’s checking account to the seller, and at the end of the month the user owes the money to the credit card company; a credit card is a short-term loan
debit card
like a check, is an instruction to the user’s bank to transfer money directly and immediately from your bank account to the seller
demand deposit
checkable deposit in banks that is available by making a cash withdrawal or writing a check
depository institution
institution that accepts money deposits and then uses these to make loans
making loans or investments with a variety of firms, to reduce the risk of being adversely affected by events at one or a few firms
double coincidence of wants
a situation in which two people each want some good or service that the other person can provide
fiat money
has no intrinsic value, but is declared by a government to be the country's legal tender
financial intermediary
an institution that operates between a saver with financial assets to invest and an entity who will borrow those assets and pay a rate of return
any amount or debt that a firm or an individual owes
M1 money supply
a narrow definition of the money supply that includes currency and checking accounts in banks, and to a lesser degree, traveler’s checks.
M2 money supply
a definition of the money supply that includes everything in M1, but also adds savings deposits, money market funds, and certificates of deposit
medium of exchange
whatever is widely accepted as a method of payment
whatever serves society in four functions: as a medium of exchange, a store of value, a unit of account, and a standard of deferred payment.
money market fund
the deposits of many investors are pooled together and invested in a safe way like short-term government bonds
money multiplier formula
total money in the economy divided by the original quantity of money, or change in the total money in the economy divided by a change in the original quantity of money
net worth
the excess of the asset value over and above the amount of the liability; total assets minus total liabilities
payment system
helps an economy exchange goods and services for money or other financial assets
funds that a bank keeps on hand and that it does not loan out or invest in bonds
savings deposit
bank account where you cannot withdraw money by writing a check, but can withdraw the money at a bank—or can transfer it easily to a checking account
smart card
stores a certain value of money on a card and then one can use the card to make purchases
standard of deferred payment
money must also be acceptable to make purchases today that will be paid in the future
store of value
something that serves as a way of preserving economic value that one can spend or consume in the future
a balance sheet with a two-column format, with the T-shape formed by the vertical line down the middle and the horizontal line under the column headings for “Assets” and “Liabilities”
time deposit
account that the depositor has committed to leaving in the bank for a certain period of time, in exchange for a higher rate of interest; also called certificate of deposit
transaction costs
the costs associated with finding a lender or a borrower for money
unit of account
the common way in which we measure market values in an economy
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