TERMS (Fill in the Blanks) Ch 31,32,33

Excess reserves

A bank's ________________ are found by subtracting its required reserves from its actual reserves

Savings account

A depositor can easily withdraw funds from a _______________ at a bank or thrift or simply request that the funds be transferred from a savings account to a checkable account.

Money market deposit account (MMDA)

A person can also withdraw funds from a __________________________________, which is an interest-bearing account containing a variety of interest-bearing short-term securities.

Near-monies

A second and broader definition of money includes M1 plus several near-monies. ____________ are certain highly liquid financial assets that do not function directly or fully as a medium of exchange but can be readily converted into currency or checkable deposits.

Required reserves

All commercial banks and thrift institutions that provide checkable deposits must by law keep ________________. [________________ are an amount of funds equal to a specified percentage of the bank's own deposit liabilities.]

Liquidity

An asset's __________ is the ease with which it can be converted quickly into the most widely accepted and easily spent from of money, cash, with little or no loss of purchasing power.

Token money

As with the currencies of other countries, the currency of the United States is _____________.

Federal funds rate

Banks that borrow in this Federal funds market---the market for immediately available reserve balances at the Federal Reserve---do so because they are temporarily short of required reserves. The interest rate paid on these overnight loans is called the __________________.

Liquidity trap

But the Fed cannot be certain of achieving its goal when it adds reserves to the banking system because of the so-called __________________, in which adding more liquidity to banks has little or no additional positive effect on lending, borrowing, investment, or aggregate demand.

Money market mutual fund (MMMF)

By making a telephone call, using the Internet, or writing a check for $500 or more, a depositor can redeem shares in a _________________________________ offered by a mutual fund company.

Vault cash

Cash held by a bank is sometimes called ___________ or till money.

Actual reserves

Excess reserves = __________________ - required reserves

Medium of exchange

First and foremost, money is a _____________ that is usable for buying and selling goods and services.

Time deposits

Funds from ______________ become available at their maturity. For example, a person can convert a 6-month time deposit ("certificate of deposit," or "CD") to currency without penalty 6 months of more after it has been deposited.

Subprime mortgage loans

In 2007 a major wave of defaults on home mortgage loans threatened the health of not only the original mortgage lenders but of any financial institution that had made such bank loans or invested in such loans either directly or indirectly. A majority of these mortgage defaults were on ______________________---high-interest-rate loans to home buyers with higher-than-average credit risk.

Hyperinflation

In Chapter 26 we noted situations in which a nation's currency became worthless and unacceptable in exchange. These instances of runaway inflation, or ________________, happened when the government issued so many pieces of paper currency that the purchasing power of each of those units of money almost totally undermined.

Troubled Asset Relief Program (TARP)

In late 2008 Congress passed the _________________________________, which allocated $700 billion---yes, billion--- to the U.S. Treasury to make emergency loans to critical financial and other U.S. firms. Most of this "bailout" money eventually was lent out.

Wall Street Reform and Consumer Protection Act

In mid-2010 Congress passed and the president signed the _________________________________________. A law that gave authority to the Federal Reserve to regulate all large financial institutions, created an oversight council to look for growing risk to the financial system, established a process for Federal government to sell off the assets of large failing financial institutions, provided Federal regulatory oversight of asset-back securities, and created a financial consumer protection bureau within the Fed.

Commercial banks

In the United States, a variety of financial institutions allow customers to write checks in any amount on the funds they have deposited. ________________ are the primary depository institutions. They accept the deposits of households and businesses, keep the money safe until it is demanded via checks, and in the meantime use it to make available a wide variety of loans.

Federal Reserve System Federal Reserve System

In the United States, the "monetary authorities" we have been referring to are the members of the Board of Governors of the ________________________ (the "Fed").

Discount rate

Just as commercial banks charge interest on the loans they make to their clients, so too Federal Reserve Banks charge interest on loans they grant to commercial banks. The interest rate they charge is called the ________________.

Cyclical asymmetry

Monetary policy may be highly effective in slowing expansions and controlling inflation but me be much less reliable in pushing the economy from a severe recession. Economists say that monetary policy may suffer from ______________________. The metaphor of "pushing on a string" is often invoked to capture this problem.

Store of value

Money also serves as a______________ that enables people to transfer purchasing power from the present to the future.

Unit of account

Money is also a____________. Society uses monetary units—dollars, as in the United Society uses monetary units—as a yardstick for measuring the relative worth of a wide variety of goods, services, and resources.

Interest

Most basically, __________ is the price paid for the use of money. It is also the price that borrowers need to pay lenders for transferring purchasing power to the future.

Financial services industry

Note that the main categories of the ________________________ are commercial banks, thrifts, insurance companies, mutual fund companies, pension funds, security firms, and investment banks.

Lender of Last Resort

One of the functions of a central bank is to be a "___________________."

Prime interest rate

One such rate is the _____________________---the benchmark interest rate used by banks as a reference point for a wide range of interest rates charged on loans to businesses and individuals.

Legal tender

Our confidence in the acceptability of paper money is strengthened because government has designated currency as _____________.

Asset demand for money

People may hold their financial assets in many forms, including corporate stocks, corporate or government bonds, or money. To the extent they want to hold money as an asset, there is an ______________________.

Thrift institutions

Savings and loan associations (S&Ls), mutual savings banks, and credit unions supplement the commercial banks and are known collectively as savings or ________________, or simply "thrifts."

Expansionary monetary policy Expansionary monetary policy

Suppose that the economy faces recession and unemployment. How will the Fed respond? It will initiate an ___________________________ (or "easy money policy"). This policy will lower the interest rate to bolster borrowing and spending, which will increase aggregate demand and expand real output.

Moral hazard Moral hazard

TARP indeed saved several financial institutions whose bankruptcy would have caused a tsunami of secondary effects that probably would have brought down other financial firms and frozen credit throughout the economy. But this very fact demonstrates the problem of ________________.

Reserve ratio

The "specified percentage" or checkable-deposit liabilities that a commercial bank must keep as reserves is known as the ______________---the ratio of the required reserves the commercial bank must keep to the bank's own outstanding checkable-deposit liabilities: _________________ = commercial bank's required reserves / commercial bank's checkable-deposit liabilities

Federal Reserve Banks

The 12 ______________________, which blend private and public control, collectively serve as the nation's "central bank." These banks also serve as banker's banks.

Reserve ratio

The Fed also can manipulate the ________________ in order to influence the ability of commercial banks to lend.

Open-market operations

The Fed's ________________________ consist of buying government bonds (U.S. securities) from or selling government bonds to commercial banks and the general public.

Federal funds rate

The Federal Reserve focuses monetary policy on the interest rate that it can directly influence: the ________________. From the previous chapter, you know that this is the rate of interest that banks charge one another on overnight loans made from temporary excess reserves.

Fractional reserve banking system

The United States, like most other countries today, has a _______________________________ in which only a portion (fraction) of checkable deposits are backed up by reserves of currency in bank vaults or deposits at the central bank.

M2

The ____ definition of money includes three categories of near-monies: -Savings deposits, including money market deposit accounts -Small-denominated (less than $100,000) time deposits -Money market mutual funds held by individuals

Taylor rule

The ___________ is a modern monetary rule proposed by economist John Taylor that would stipulate exactly how much the Federal Reserve should change real interest rates in response to divergences of real GDP from potential GDP and divergences of actual rates of inflation from a target rate of inflation.

Balance sheet

The _____________ of a commercial bank (or thrift) is a statement of assets---things owned by the bank or owed to the bank---and claims on those assets.

Monetary multiplier

The __________________ (or, less commonly, the checkable deposit multiplier) define the relationship between any new excess reserves in the banking system and the magnified creation of new checkable-deposit money by banks as a group.

Total demand for money

The ______________________ is the sum of the transactions demand for money and the asset demand for money.

Federal Open Market Committee (FOMC)

The ___________________________________ aids the Boards of Governors in conducting monetary policy. The FOMC is made up of 12 individuals: -The seven members of the Board of Governors. -The president of the New York Federal Reserve Bank. -Four of the remaining presidents of Federal Reserve Banks on a 1-year rotating basis.

Board of Governors

The central authority of the U.S. money and banking system is the __________________ of the Federal Reserve System. The U.S. president, with the confirmation of the Senate, appoints the seven Board members.

Federal Reserve Notes

The currency of the United States consists of metal coins and paper money. The coins are issued by the U.S. Treasury while the paper money consists of _________________ issued by the Federal Reserve System (the U.S. central bank).

Transactions demand for money

The demand for money as a medium of exchange is called the ________________________________.

Term auction facility

The fourth Fed tool for altering bank reserves is its ________________________. The Fed holds two auctions each month at which banks bid for the right to borrow reserves for 24-day and 84-day periods.

Monetary policy

The goal of _________________ is to achieve and maintain price-level stability, full employment, and economic growth.

M1

The narrowest definition of the U.S. money is called ____. It consists of two components: -Currency (coins and paper money) in the hands of the public. -All checkable deposits (all deposits in commercial banks and "thrift" or savings institutions on which checks of any size can be drawn).

Restrictive monetary policy

The opposite monetary policy is in order for periods of rising inflation. The Fed will then undertake a ________________________ (or "tight money policy"). This policy will increase the interest rate to reduce borrowing and spending, which will curtail the expansion of aggregate demand and hold down price-level increases.

Securitization

The problems just described relate to _________________---the process of slicing up and bundling groups of loans, mortgages, corporate bonds, or other financial debts into distinct new securities.

Pushing on a string

The recent U.S. experience is not a cure-all for the business cycle. Under some circumstances, monetary policy may be like "___________________."

Checkable deposits

The safety and convenience of checks has made _______________ a large component of the M1 money supply.

Mortgage-backed securities

________________________ are bonds backed by mortgage payments. To create them, banks and other mortgage lenders first made mortgage loans.