Chapter 14 Terms Money and Banking

M2

A more broadly defined money supply, equal to M1 plus noncheckable savings accounts (including money market deposit accounts), small time deposits (deposits of less than $100,000), and individual money market mutual fund balances.

Thrift institutions

A savings and loan association, mutual savings bank, or credit union.

Electronic payments

Purchases made by transferring funds electronically. Examples: Fedwire transfers, automated clearinghouse transactions (ACHs), payments via the PayPal system, and payments made through stored-value cards.

Federal Reserve Notes

Paper money issued by the Federal Reserve Banks.

Federal Reserve Banks

The 12 banks chartered by the U.S. government to control the money supply and perform other functions. (See central bank, quasi-public bank, and bankers' bank.)

Federal Open Market Committee (FOMC)

The 12-member group that determines the purchase and sale policies of the Federal Reserve Banks in the market for U.S. government securities.

Board of Governors

The seven-member group that supervises and controls the money and banking system of the United States; the Board of Governors of the Federal Reserve System; the Federal Reserve Board.

Token money

Bills or coins for which the amount printed on the currency bears no relationship to the value of the paper or metal embodied within it; for currency still circulating, money for which the face value exceeds the commodity value.

Savings account

A deposit in a commercial bank or thrift institution on which interest payments are received; generally used for saving rather than daily transactions; a component of the M2 money supply.

Commercial banks

A firm that engages in the business of banking (accepts deposits, offers checking accounts, and makes loans).

Legal tender

A legal designation of a nation's official currency (bills and coins). Payment of debts must be accepted in this monetary unit, but creditors can specify the form of payment, for example, "cash only" or "check or credit card only."

Unit of account

A standard unit in which prices can be stated and the value of goods and services can be compared; one of the three functions of money.

Store of value

An asset set aside for future use; one of the three functions of money.

Time deposits

An interest-earning deposit in a commercial bank or thrift institution that the depositor can withdraw without penalty after the end of a specified period.

Checkable deposits

Any deposit in a commercial bank or thrift institution against which a check may be written.

Medium of exchange

Any item sellers generally accept and buyers generally use to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter.

Money market deposit account (MMDA)

Bank- and thrift-provided interest-bearing accounts that contain a variety of short-term securities; such accounts have minimum balance requirements and limits on the frequency of withdrawals.

Near-monies

Financial assets, the most important of which are noncheckable savings accounts, time deposits, and U.S. short-term securities and savings bonds, which are not a medium of exchange but can be readily converted into money.

Money market mutual fund (MMMF)

Interest-bearing accounts offered by investment companies, which pool depositors' funds for the purchase of short-term securities. Depositors can write checks in minimum amounts or more against their accounts.

Federal Reserve System

The U.S. central bank, consisting of the Board of Governors of the Federal Reserve and the 12 Federal Reserve Banks, which controls the lending activity of the nation's banks and thrifts and thus the money supply; commonly referred to as the "Fed."

Financial services industry

The broad category of firms that provide financial products and services to help households and businesses earn interest, receive dividends, obtain capital gains, insure against losses, and plan for retirement. Includes commercial banks, thrifts, insurance companies, mutual fund companies, pension funds, investment banks, and securities firms.

Liquidity

The ease with which an asset can be converted quickly into cash with little or no loss of purchasing power. Money is said to be perfectly liquid, whereas other assets have a lesser degree of liquidity.

M1

The most narrowly defined money supply, equal to currency in the hands of the public and the checkable deposits of commercial banks and thrift institutions.