macroeconomics Vocab 4

loan in the form of an IOU that pays interest

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. Positive represents funds borrowed from foreigners to finance domestic investment; negative represents funds lent to foreigners to finance foreign investment

medium of exchange that is a good, normally gold or silver, that has intrinsic value in other uses

a claim on a bank that obliges the bank to give the depositor his or her cash when demanded

the interest rate the Fed charges on loans to banks

a bank's reserves over and above the reserves required by law or regulation

the interest rate at which funds are borrowed and lent in the federal funds market

a medium of exchange whose value derives entirely from its official status as a means of payment

a banking system that keeps only a fraction of its funds on hand and lends out the remainder (not in book)

a requirement to pay income in the future

describes an asset that can be quickly converted into cash without much loss of value

a hypothetical market in which the demand for funds is generated by borrowers and the supply of funds is provided by lenders. The market equilibrium determines the quantity and price, or interest rate, of loanable funds

contains only currency in circulation (also known as cash), traveler's checks, and checkable bank deposits

starts with M1 and includes near moneys - financial assets that aren't directly usable as a medium of exchange but can be readily converted into cash or checkable bank deposits, such as savings accounts

starts with M2 and includes large bank deposits

the central bank's use of changes in the quantity of money or the interest rate to stabilize the economy

the trade in short-term loans between banks and other financial institutions (less than one year) (not in book)

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

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%

the fraction of bank deposits that a bank holds as reserves. In the United States, the minimum required reserve ratio is set by the Federal Reserve

an accounting fact that states that savings and investment spending are always equal for the economy as a whole