Financial Assets & Money
Any item that is widely accepted in exchange for goods and services in an economy
What is money?
The mandatory portion of checkable deposits that commercial banks must keep as cash in their vaults or in deposits at the central bank
What are required reserves?
The vertical axis on the money market graph is labeled as this specific interest rate
What is the nominal interest rate?
The central bank's use of changes in the money supply and interest rates to influence aggregate demand and real output
What is monetary policy?
The vertical axis on the loanable funds market graph is labeled as this interest rate
What is the real interest rate?
The ease with which a financial asset can be converted into cash without a significant loss of its purchasing power
What is liquidity?
A bank's actual reserves minus its required reserves yields this type of reserves, which the bank is legally allowed to lend out
What are excess reserves?
The money supply curve in the money market model is drawn as this shape because its quantity is fixed by the central bank
What is vertical?
The most frequently used tool of monetary policy, involving the buying and selling of government securities
What are open market operations?
The supply curve of loanable funds is primarily derived from this economic activity
What is national saving (or household savings)?
The narrowest definition of the money supply, consisting strictly of currency in circulation and checkable deposits
What is M1?
The accounting statement that outlines a bank's assets, liabilities, and net worth
What is a balance sheet (or T-account)?
The demand for money that arises specifically because people need to hold cash to buy everyday goods and services
What is the transaction demand for money?
To fight severe inflation, the central bank should engage in this specific type of open market operation
What is selling bonds?
The demand curve for loanable funds primarily comes from businesses seeking money to do this
What is invest (or borrow)?
Money that has value solely because the government has decreed it to be acceptable for paying debts
What is fiat money?
Demand deposits are classified as this specific category on a bank's balance sheet because the bank owes the money to the depositors
What are liabilities?
If the central bank aggressively increases the money supply, the equilibrium nominal interest rate will move in this direction
What is decrease?
The specific interest rate that commercial banks charge one another for overnight loans to meet reserve requirements
What is the federal funds rate?
If the government runs a massive budget deficit, it will increase the demand for loanable funds, causing real interest rates to do this
What is increase?
The function of money that allows it to provide a common measurement of the relative value of all goods and services
What is a unit of account?
Balance a textbook on your head and walk backward for ten steps without dropping it to earn this bonus!
Completed the silly act
An increase in the aggregate price level across the economy will cause the money demand curve to shift in this direction
What is to the right?
The interest rate that the central bank directly charges commercial banks for short-term loans
What is the discount rate?
A massive influx of foreign financial capital seeking higher domestic returns will shift the supply of loanable funds in this direction
What is to the right?