| A | B |
|---|
| money supply | Liquid assets held by banks and individuals |
| liquidity | Measure of how quickly things may be converted to something of value like cash |
| M1 | money that can be spent immediately |
| M2 | all the money in M1 plus short-term investments (less than $100,000), money market accounts, money market mutual funds |
| M3 | all the money in M1 plus short-term investments (less than $100,000), money market accounts, money market mutual funds |
| MZM | money at zero maturity |
| medium of exchange | agreed upon value because everyone agrees to it |
| commodity money | Based on some item of value, gold or precious stones |
| fiat money | Money that is deemed legal tender by the government |
| fractional-reserve system | method of ‘storing’ money, loaning it out for interest paid, and reserving a portion for potential withdrawals |
| primary reserves | cash on hand, deposits that may be due from other banks, and the percentage required by the Federal Reserve System |
| fiat | Any order issued by legal authority |
| secondary reserves | securities the bank purchases from the Federal government |
| Excess reserves | reserves held beyond its reserve requirement |
| multiplier effect | Money on deposit minus the Fed reserves requirement can be loaned to customers and create more deposits |
| ledger entry | A record of the transaction usually paperless |
| securities | back your currency |
| tight money | Interest rates are high and business tends to slow |
| Market forces | one factor in determining interest rates |
| Federal Funds Rate | amount of interest charged for short-term, interbank loans |
