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100% Reserve Banking System
A system in which banks must keep all deposits on hand and ready for withdrawal.
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Assets
Cash, stocks, bonds, and physical goods that are stores of wealth and value.
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Balance Sheet
An accounting tool where assets and liabilities are compared side by side.
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Borrowers
Individuals who take out loans from banks.
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Currency
Money, either fiat or commodity, that is commonly used in an economy.
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Demand Deposits
Deposits made by in banks that can be withdrawn at any time--that is, on demand.
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Deposits
Money given to banks for safekeeping and to earn interest.
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Federal Deposit Insurance Corporation
A corporation that insures individual bank accounts up to $100,000 to ensure that the public is confident in the banking system.
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Federal Funds Interest Rate
The discount interest rate at which the branch banks of the Fed loan money to other banks.
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Federal reserve
The federal group that controls the money supply though monetary policy and fiscal policy.
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Federal Reserve Banks
Branches of the Fed that serve as banks for non-government controlled banks by accepting deposits, giving withdrawals, and making loans as needed.
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Fiat Money
Money that has no intrinsic value but that is instead only valuable because it is backed and regulated by a governing body.
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Financial Intermediary
An entity, like a bank, that works between savers and borrowers by accepting deposits and making loans.
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Fiscal Policy
Operations by the Fed that affect the money supply including manipulation of the federal funds interest rate and the reserve requirement.
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Fractional Reserve Banking System
A banking system wherein less than 100% of the deposits are required to be held as reserves.
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Government Bonds
Bonds issued by the government and bought and sold by the Fed as a form of monetary policy to manipulate the money supply.
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Inflation
An increase in the price level over time.
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Interest
Money paid by a borrower to a lender in return for the use of money in the form of a loan.
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Interest Rate
The rate of interest in the form of percent of the balance due per year.
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Lender
One who gives money to be repaid at a later date, with interest.
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Liabilities
Money owed.
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Loans
Money given by lenders to borrowers.
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Monetary Policy
Policy used to affect the money supply employed by the Fed. In particular, this describes the open market operations of buying and selling government bonds.
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Money
The stock of assets used in transactions within an economy.
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Money Multiplier
The number that describes the change in the money supply given an initial deposit and a reserve requirement.
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Money Supply
The total amount of currency in circulation as controlled by Fed policy.
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Open Market Operations
The purchase and sale of government bonds by the Fed in order to affect the money supply.
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Paper Balances
Deposits that exist on paper but are not backed by physical currency.
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Principle
The initial amount of money given as a loan.
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Reserve
Money not given out in loans that is available for repaying depositors.
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Reserve Requirement
The percent of total deposits required to be held back for repaying depositors. This is controlled by the Fed as a form of monetary policy.
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Savers
Individuals who deposit money in banks.
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Treasury
The government agency that prints, mints, and stores money.
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Money Multiplier = 1 / (reserve requirement)
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Change in Money Supply = [initial deposit * (1 / reserve requirement)] - initial deposit
