asset  something of value owned by a person or a firm.
bank  a firm that channels funds from savers to investors by accepting deposits and making loans.
checking deposit  an account at a financial institution on which checks can be written; also called checkable deposit.
currency  money in its physical form: coins and paper money.
currency to deposit ratio  the proportion of currency that people in the economy want to hold relative to their deposits; it equals currency divided by deposits.
Federal Open Market Committee (FOMC)  the committee, consisting of the seven members of the Board of Governors and the twelve presidents of the Fed district banks, that meets about eight times per year; only five of the presidents vote at any one time.
Federal Reserve System (the Fed)  the central bank of the United States, which oversees the creation of money in the United States.
liability  something of value a person or firm owes to someone else.
medium of exchange  something that is generally accepted as a means of payment.
monetary base  currency plus reserves.
money  that part of a person’s wealth that can be readily used for transactions; money also serves as a store of value and a unit of account.
money multiplier  the multiple by which the money supply changes as a result of a change in the monetary base.
money supply  the sum of currency (coin and paper money) held by the public and deposits at banks.
open market operation  the buying and selling of bonds by the central bank.
quantity equation of money  the equation relating the price level and real GDP to the quantity of money and the velocity of money: The quantity of money times its velocity equals the price level times real GDP.
required reserve ratio  the fraction of a bank’s deposits that it is required to hold at the Fed.
reserves  deposits that commercial banks hold at the Fed.
store of value  something that will allow purchasing power to be carried from one period to the next.
unit of account  a standard unit in which prices can be quoted and values of goods can be compared.
velocity  a measure of how fast money is turned over in the economy.