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Deposits made by in banks that can be withdrawn at any time--that is, on demand.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