Chapter 11
Money
Any good that is widely accepted for purposes of exchange and in the repayment of debt.
Barter
Exchanging goods and services for other goods and services without the use of money.
Medium of Exchange
A function of money, anything that is generally acceptable in exchange for goods and services.
Unit of Account
A function of money, a common measure in which relative values are expressed.
Store of Value
A function of money, the ability of an item to hold value over time.
Double Coincidence of Wants
In a barter economy, a requirement that must be met before a trade can be made. It specifies that a trader must find another trader who is willing to trade what the first trader wants and at the same time wants what the first trader has.
M1
Currency held outside banks plus checkable deposits plus traveler’s checks.
Currency
Coins and paper money.
Federal Reserve Notes
Paper money issued by the Fed.
Checkable Deposits
Deposits on which checks can be written.
M2
M1 plus savings deposits (including money market deposit accounts) plus small-denomination time deposits plus (retail) money market mutual funds.
Savings Deposit
An interest-earning account at a commercial bank or thrift institution. Normally, checks cannot be written on savings deposits, and the funds in a savings deposit can be withdrawn (at any time) without a penalty payment.
Money Market Deposit Account
An interest-earning account at a bank or thrift institution. Usually, a minimum balance is required for an MMDA, and most offer limited check-writing privileges.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the
U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

Time Deposit
An interest-earning deposit with a specified maturity date. Time deposits are subject to penalties for early withdrawal. Small-denomination time deposits are deposits of less than $100,000.
Money Market Mutual Fund
An interest-earning account at a mutual fund company. Usually, a minimum balance is required for an MMMF account. Most MMMF accounts offer limited check-writing privileges. Only retail MMMFs are part of M2.
Fractional Reserve Banking
A banking arrangement that allows banks to hold reserves equal to only a fraction of their deposit liabilities.
Federal Reserve System (the Fed)
The central bank of the United States.
Reserves
The sum of bank deposits at the Fed and vault cash.
Required Reserve Ratio (r)
A percentage of each dollar deposited that must be held on reserve (at the Fed or in the bank’s vault).
Required Reserves
The minimum amount of reserves a bank must hold against its checkable deposits as mandated by the Fed.
Excess Reserves
Any reserves held beyond the required amount. The difference between (total) reserves and required reserves.
T-Account
A simplified balance sheet that shows the changes in a bank’s assets and liabilities.
Simple Deposit Multiplier
The reciprocal of the required reserve ratio, 1/ r .
Cash Leakage
Occurs when funds are held as currency instead of deposited into a checking account.
© 2010 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the
U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.