Money, banks, the Federal Reserve, monetary policy tools, loanable funds, and the money market.
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- What are the three functions of money?
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Medium of exchange, unit of account, and store of value- What is fiat money?
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Currency whose value comes from government decree (legal tender) rather than backing by a physical commodity- What is commodity money?
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Money backed by or convertible into a physical commodity such as gold or silver- What does M2 include that M1 does not?
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Savings accounts, money market accounts, and certificates of deposit (CDs)- What is near money?
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Highly liquid assets that are not money but can be quickly converted to cash- What is a commercial bank?
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A financial institution that accepts deposits from customers and makes loans to businesses and individuals- What is the Federal Reserve?
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The central bank of the United States, responsible for controlling the money supply and implementing monetary policy- What is legal tender?
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Currency that must be accepted as payment for debts and financial obligations- How does fractional reserve banking work?
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Banks hold only a fraction of deposits as required reserves and lend out the remainder, creating credit and expanding the money supply- What is a bank run?
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A situation where many depositors simultaneously demand withdrawal of their funds, typically due to fear or loss of confidence in the bank- What is FDIC insurance?
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Federal Deposit Insurance Corporation protection that guarantees deposits up to $250,000 per account in member banks- What is the prime rate?
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The lowest interest rate at which commercial banks lend to their most creditworthy customers- What is a certificate of deposit (CD)?
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A savings product in which a customer deposits money for a fixed period and earns a guaranteed interest rate- What is the Federal Funds Rate?
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The interest rate at which commercial banks lend reserve balances to each other overnight- What is the Federal Reserve's dual mandate?
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To achieve maximum employment and maintain stable prices (controlled inflation)
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