Money

Vocabulary

barter

trading goods or services for other goods and services

commodity money

a form of money that has an intrinsic value or has value in itself (i.e., gold, silver, cattle)

currency

a system of money in use within an economy

demand for money

holding of cash deposits and liquid assets; the desire to hold wealth in the form of money

double coincidence of wants

a situation in which two parties making a trade each has what the other wants

equilibrium interest rate

the rate of interest at which the quantity of money demanded equals the quantity of money supplied

fiat money

a form of money that is not backed by any physical commodity but is mandated by the government to be acceptable as payment for goods and services

liquidity

the degree to which an asset can be readily converted to spendable cash without a significant loss in value

liquidity trap

at very low interest rates, the result that monetary policy becomes ineffective because increases in the money supply have no effect on interest rates

M1

the money supply measure consisting of currency, checkable deposits, and travelers' checks

M2

the money supply measure consisting of all of the assets in M1 plus savings deposits, money market mutual funds, and certificates of deposit less than $100,000

medium of exchange

the function of money that helps individuals trade goods and services more easily

monetary policy

intervention in the economy through central bank actions, such as adjustments to interest rates, reserve requirements, and open market operations, that affect the money supply and interest rates

money

anything that is generally accepted as payment

precautionary demand for money

the desire to hold money in order to pay for emergency expenses

speculative demand for money

the desire to hold money to be able to purchase financial assets at the appropriate time or to hedge certain current financial risks

standard of deferred payment

the function of money through which it serves as a method for paying off both public and private debts

store of value

the function of money by which it serves as a way to hold wealth

supply of money

the quantity of money available in the economy, set by the U.S. Federal Reserve

transaction demand for money

the desire to hold money to purchase goods and services

unit of account

the function of money through which it serves to measure the value of goods and services