money and the U.S financial system

Money
The stock of financial assets that can easily be used to make market transactions and that serves as a medium of exchange, a unit of account, and a store of value.

Barter system
A system in which goods and services are exchanged directly without a common unit of account.


Liquidity
The ability of a financial asset to be used to immediately make market transactions.
Demand deposits
Another name for checking accounts or checkable deposits, one of the major components of the M1 measure of the money
supply.


Depository institutions
Institutions that accept deposits from individuals and organizations, against which depositors can write checks on demand for their market transactions and that use these deposits to make loans.


Federal Deposit insurance Corporation (FDiC)
The government regulatory institution that supervises the activities of depository institutions in the United States and provides
depositors with accounts up to a certain amount (currently $250,000) with a guarantee that they will receive their funds even in the event of a bank failure.

Fractional reserve system
A banking system in which banks are required to keep only a fraction of their deposits as reserves.

reserve requirement
Required reserves kept in banks’ vaults or as deposits at the Federal Reserve divided by demand deposits or the fraction of deposits banks are required to keep as reserves.
Simple deposit multiplier
The amount by which the money supply can be increased in a fractional reserve banking system, which equals (1/rr), where rr is the reserve requirement.

Money supply
Currency plus checkable accounts or demand deposits (M1). Monetary base Currency plus reserves (both required and excess), a variable controlled by central bank policy.

Money multiplier
The money multiplier, mm—which is usually smaller than the simple deposit multiplier, d—reflects individuals’ decisions to hold some of their assets in cash rather than deposit them in a checking account and banks’ decisions to hold excess reserves.

Federal reserve System (Fed)
The central bank in the United States that implements monetary policy and helps regulate and operate the country’s financial
system.

seven members of the Board of Governors located in Washington, D.C., 12 Federal Reserve District Banks
in major cities across the country, and approximately 2,900 member banks.

Beige Book
A publication of the Federal Reserve System that includes information on current economic conditions gathered from the Federal Reserve banks’ staff and interviews with business contacts, economists, market experts, and other sources.


Federal open Market Committee (FoMC)
The Federal Reserve body that has the primary responsibility for conducting monetary policy.


open market operations
The major tool of Fed monetary policy that involves the buying and selling of government securities on the open market in order to change the money supply and influence interest rates.
Federal funds rate
The interest rate that commercial banks charge each other for loans of reserves to meet their minimum reserve requirements.
Federal funds market
The private financial market where banks borrow and loan reserves to meet the minimum reserve requirements.
expansionary monetary policy
Federal Reserve policy to increase the rate of growth of real GDP by increasing the amount of bank reserves in the system and lowering the federal funds and other interest rates.


Contractionary monetary policy
Federal Reserve policy to decrease the rate of growth of real GDP by decreasing the amount of bank reserves in the system and raising the federal funds and other interest rates.


Technical factors
Other influences on the commercial banking system’s reserves that are unrelated to Fed monetary policy.


Prime rate
The interest rate that banks charge on loans to their best customers.


Discount rate
The interest rate the Federal Reserve charges banks that borrow reserves at the Fed’s discount window.


Nontraditional Approaches
liquidity provision and asset purchases 2009----

nominal money supply (M S )
The money supply (M1), controlled by the Federal Reserve, which is defined in dollar terms.
real money supply (M S /P)
The nominal money supply divided by the price level, which expresses the money supply in terms of real goods and services and which influences behavior.


Real Money Supply Function
RLMS = M S /P
where
RLMS = real money supply
M S = nominal money supply
P = price level
RLMS = M S /P = f（r,M S , P ）0，+，—
where
RLMS = real money supply
r = real interest rate
M S = nominal money supply1controlled by Federal Reserve


real money demand
The demand for money in real terms, which is a function of the real interest rate and the level of real income.


RLMD = M D /P = f（r,Y ）-，+
where
RLMD = real money demand
M D = nominal money demand
P = price level
r = real interest rate
Y = real income