{"id":595,"date":"2015-06-30T21:58:18","date_gmt":"2015-06-30T21:58:18","guid":{"rendered":"https:\/\/pressbooks.ccconline.org\/accmacro\/chapter\/glossary-monetary-policy\/"},"modified":"2023-07-14T19:08:09","modified_gmt":"2023-07-14T19:08:09","slug":"glossary-monetary-policy","status":"publish","type":"chapter","link":"https:\/\/pressbooks.ccconline.org\/accmacro\/chapter\/glossary-monetary-policy\/","title":{"raw":"Glossary: Monetary Policy","rendered":"Glossary: Monetary Policy"},"content":{"raw":"

Money and Banking<\/h2>\n
asset<\/dt>
item of value owned by a firm or an individual<\/dd>
asset\u2013liability time mismatch<\/dt>
a bank\u2019s liabilities can be withdrawn in the short term while its assets are repaid in the long term<\/dd>
balance sheet<\/dt>
an accounting tool that lists assets and liabilities<\/dd>
bank capital<\/dt>
a bank\u2019s net worth<\/dd>
barter<\/dt>
literally, trading one good or service for another, without using money<\/dd>
coins and currency in circulation<\/dt>
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<\/dd>
commodity money<\/dt>
an item that is used as money, but which also has value from its use as something other than money<\/dd>
commodity-backed currencies<\/dt>
are dollar bills or other currencies with values backed up by gold or another commodity<\/dd>
credit card<\/dt>
immediately transfers money from the credit card company\u2019s 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<\/dd>
debit card<\/dt>
like a check, is an instruction to the user\u2019s bank to transfer money directly and immediately from your bank account to the seller<\/dd>
demand deposit<\/dt>
checkable deposit in banks that is available by making a cash withdrawal or writing a check<\/dd>
depository institution<\/dt>
institution that accepts money deposits and then uses these to make loans<\/dd>
diversify<\/dt>
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<\/dd>
double coincidence of wants<\/dt>
a situation in which two people each want some good or service that the other person can provide<\/dd>
fiat money<\/dt>
has no intrinsic value, but is declared by a government to be the legal tender of a country<\/dd>
financial intermediary<\/dt>
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<\/dd>
liability<\/dt>
any amount or debt owed by a firm or an individual<\/dd>
M1 money supply<\/dt>
a narrow definition of the money supply that includes currency and checking accounts in banks, and to a lesser degree, traveler\u2019s checks.<\/dd>
M2 money supply<\/dt>
a definition of the money supply that includes everything in M1, but also adds savings deposits, money market funds, and certificates of deposit<\/dd>
medium of exchange<\/dt>
whatever is widely accepted as a method of payment<\/dd>
money market fund<\/dt>
the deposits of many investors are pooled together and invested in a safe way like short-term government bonds<\/dd>
money multiplier formula<\/dt>
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<\/dd>
money<\/dt>
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.<\/dd>
net worth<\/dt>
the excess of the asset value over and above the amount of the liability; total assets minus total liabilities<\/dd>
payment system<\/dt>
helps an economy exchange goods and services for money or other financial assets<\/dd>
reserves<\/dt>
funds that a bank keeps on hand and that are not loaned out or invested in bonds<\/dd>
savings deposit<\/dt>
bank account where you cannot withdraw money by writing a check, but can withdraw the money at a bank\u2014or can transfer it easily to a checking account<\/dd>
smart card<\/dt>
stores a certain value of money on a card and then the card can be used to make purchases<\/dd>
standard of deferred payment<\/dt>
money must also be acceptable to make purchases today that will be paid in the future<\/dd>
store of value<\/dt>
something that serves as a way of preserving economic value that can be spent or consumed in the future<\/dd>
T-account<\/dt>
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 \u201cAssets\u201d and \u201cLiabilities\u201d<\/dd>
time deposit<\/dt>
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<\/dd>
transaction costs<\/dt>
the costs associated with finding a lender or a borrower for money<\/dd>
unit of account<\/dt>
the common way in which market values are measured in an economy<\/dd><\/dl>\n

Monetary Policy<\/h2>\n
bank run<\/dt>
when depositors race to the bank to withdraw their deposits for fear that otherwise they would be lost<\/dd>
basic quantity equation of money<\/dt>
money supply \u00d7 velocity = nominal GDP<\/dd>
central bank<\/dt>
institution which conducts a nation\u2019s monetary policy and regulates its banking system<\/dd>
contractionary monetary policy<\/dt>
a monetary policy that reduces the supply of money and loans<\/dd>
countercyclical<\/dt>
moving in the opposite direction of the business cycle of economic downturns and upswings<\/dd>
deposit insurance<\/dt>
an insurance system that makes sure depositors in a bank do not lose their money, even if the bank goes bankrupt<\/dd>
discount rate<\/dt>
the interest rate charged by the central bank on the loans that it gives to other commercial banks<\/dd>
excess reserves<\/dt>
reserves banks hold that exceed the legally mandated limit<\/dd>
expansionary monetary policy<\/dt>
a monetary policy that increases the supply of money and the quantity of loans<\/dd>
federal funds rate<\/dt>
the interest rate at which one bank lends funds to another bank overnight<\/dd>
inflation targeting<\/dt>
a rule that the central bank is required to focus only on keeping inflation low<\/dd>
lender of last resort<\/dt>
an institution that provides short-term emergency loans in conditions of financial crisis<\/dd>
loose monetary policy<\/dt>
see expansionary monetary policy<\/dd>
open market operations<\/dt>
the central bank selling or buying Treasury bonds to influence the quantity of money and the level of interest rates<\/dd>
quantitative easing (QE)<\/dt>
the purchase of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand<\/dd>
reserve requirement<\/dt>
the percentage amount of its total deposits that a bank is legally obligated to to either hold as cash in their vault or deposit with the central bank<\/dd>
tight monetary policy<\/dt>
see contractionary monetary policy<\/dd>
velocity<\/dt>
the speed with which money circulates through the economy; calculated as the nominal GDP divided by the money supply<\/dd><\/dl><\/div>\n
<\/div>","rendered":"

Money and Banking<\/h2>\n
\n
asset<\/dt>\n
item of value owned by a firm or an individual<\/dd>\n
asset\u2013liability time mismatch<\/dt>\n
a bank\u2019s liabilities can be withdrawn in the short term while its assets are repaid in the long term<\/dd>\n
balance sheet<\/dt>\n
an accounting tool that lists assets and liabilities<\/dd>\n
bank capital<\/dt>\n
a bank\u2019s net worth<\/dd>\n
barter<\/dt>\n
literally, trading one good or service for another, without using money<\/dd>\n
coins and currency in circulation<\/dt>\n
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<\/dd>\n
commodity money<\/dt>\n
an item that is used as money, but which also has value from its use as something other than money<\/dd>\n
commodity-backed currencies<\/dt>\n
are dollar bills or other currencies with values backed up by gold or another commodity<\/dd>\n
credit card<\/dt>\n
immediately transfers money from the credit card company\u2019s 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<\/dd>\n
debit card<\/dt>\n
like a check, is an instruction to the user\u2019s bank to transfer money directly and immediately from your bank account to the seller<\/dd>\n
demand deposit<\/dt>\n
checkable deposit in banks that is available by making a cash withdrawal or writing a check<\/dd>\n
depository institution<\/dt>\n
institution that accepts money deposits and then uses these to make loans<\/dd>\n
diversify<\/dt>\n
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<\/dd>\n
double coincidence of wants<\/dt>\n
a situation in which two people each want some good or service that the other person can provide<\/dd>\n
fiat money<\/dt>\n
has no intrinsic value, but is declared by a government to be the legal tender of a country<\/dd>\n
financial intermediary<\/dt>\n
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<\/dd>\n
liability<\/dt>\n
any amount or debt owed by a firm or an individual<\/dd>\n
M1 money supply<\/dt>\n
a narrow definition of the money supply that includes currency and checking accounts in banks, and to a lesser degree, traveler\u2019s checks.<\/dd>\n
M2 money supply<\/dt>\n
a definition of the money supply that includes everything in M1, but also adds savings deposits, money market funds, and certificates of deposit<\/dd>\n
medium of exchange<\/dt>\n
whatever is widely accepted as a method of payment<\/dd>\n
money market fund<\/dt>\n
the deposits of many investors are pooled together and invested in a safe way like short-term government bonds<\/dd>\n
money multiplier formula<\/dt>\n
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<\/dd>\n
money<\/dt>\n
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.<\/dd>\n
net worth<\/dt>\n
the excess of the asset value over and above the amount of the liability; total assets minus total liabilities<\/dd>\n
payment system<\/dt>\n
helps an economy exchange goods and services for money or other financial assets<\/dd>\n
reserves<\/dt>\n
funds that a bank keeps on hand and that are not loaned out or invested in bonds<\/dd>\n
savings deposit<\/dt>\n
bank account where you cannot withdraw money by writing a check, but can withdraw the money at a bank\u2014or can transfer it easily to a checking account<\/dd>\n
smart card<\/dt>\n
stores a certain value of money on a card and then the card can be used to make purchases<\/dd>\n
standard of deferred payment<\/dt>\n
money must also be acceptable to make purchases today that will be paid in the future<\/dd>\n
store of value<\/dt>\n
something that serves as a way of preserving economic value that can be spent or consumed in the future<\/dd>\n
T-account<\/dt>\n
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 \u201cAssets\u201d and \u201cLiabilities\u201d<\/dd>\n
time deposit<\/dt>\n
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<\/dd>\n
transaction costs<\/dt>\n
the costs associated with finding a lender or a borrower for money<\/dd>\n
unit of account<\/dt>\n
the common way in which market values are measured in an economy<\/dd>\n<\/dl>\n

Monetary Policy<\/h2>\n
\n
\n
bank run<\/dt>\n
when depositors race to the bank to withdraw their deposits for fear that otherwise they would be lost<\/dd>\n
basic quantity equation of money<\/dt>\n
money supply \u00d7 velocity = nominal GDP<\/dd>\n
central bank<\/dt>\n
institution which conducts a nation\u2019s monetary policy and regulates its banking system<\/dd>\n
contractionary monetary policy<\/dt>\n
a monetary policy that reduces the supply of money and loans<\/dd>\n
countercyclical<\/dt>\n
moving in the opposite direction of the business cycle of economic downturns and upswings<\/dd>\n
deposit insurance<\/dt>\n
an insurance system that makes sure depositors in a bank do not lose their money, even if the bank goes bankrupt<\/dd>\n
discount rate<\/dt>\n
the interest rate charged by the central bank on the loans that it gives to other commercial banks<\/dd>\n
excess reserves<\/dt>\n
reserves banks hold that exceed the legally mandated limit<\/dd>\n
expansionary monetary policy<\/dt>\n
a monetary policy that increases the supply of money and the quantity of loans<\/dd>\n
federal funds rate<\/dt>\n
the interest rate at which one bank lends funds to another bank overnight<\/dd>\n
inflation targeting<\/dt>\n
a rule that the central bank is required to focus only on keeping inflation low<\/dd>\n
lender of last resort<\/dt>\n
an institution that provides short-term emergency loans in conditions of financial crisis<\/dd>\n
loose monetary policy<\/dt>\n
see expansionary monetary policy<\/dd>\n
open market operations<\/dt>\n
the central bank selling or buying Treasury bonds to influence the quantity of money and the level of interest rates<\/dd>\n
quantitative easing (QE)<\/dt>\n
the purchase of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand<\/dd>\n
reserve requirement<\/dt>\n
the percentage amount of its total deposits that a bank is legally obligated to to either hold as cash in their vault or deposit with the central bank<\/dd>\n
tight monetary policy<\/dt>\n
see contractionary monetary policy<\/dd>\n
velocity<\/dt>\n
the speed with which money circulates through the economy; calculated as the nominal GDP divided by the money supply<\/dd>\n<\/dl>\n<\/div>\n
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