| A | B |
|---|
| money supply | is defined as the liquid assets held by banks and individuals |
| liquidity | is a measure of how quickly things can be converted to something of value like cash |
| aggregate measures | add up the components of money supply |
| commodity money | based on some item of value |
| Fiat money | money that is deemed legal tender by the government, and it is not based on or convertible into a commodity |
| fractional-reserve system | where one keeps back or reserves only a fraction of the total gold that had been deposited |
| primary reserves | consists of vault cashand the required percentage amounts on deposit in the Federal Reserve District Bank |
| vault cash | cash on hand |
| secondary reserves | including securities the bank purchases from the federal government, and deposits that are due from other banks |
| excess reserves | reserves held by a bank beyond its reserve requirement |
| multiplier effect | new deposits go out to customers as loans and create more deposits, thus expanding the amount of money in the system |
| federal funds rate | amount of interest charged for short-term, interbank loans |
| discount rate | interest rate that the federal reserve sets and charges for loans to member banks |
| prime rate | rate that the banks charge their best and most reliable customers |
