Macroeconomics and Money Concepts

Macroeconomics Definition

• Macroeconomics examines the entire economy, including issues like inflation, unemployment, and economic growth.

Money Definition

• Money is anything widely accepted as a medium of exchange for goods and services.

Three Terms Defining Money by Usage

• Commodity money: A good used as money (e.g., gold).
• Fiat money: Money by government decree, not backed by a commodity.
• Representative money: Money representing a commodity, like a paper note backed by gold.

Currency Definition

• Currency is paper money and coins.

Six Characteristics of Money

• Portability: Easy to carry.
• Divisibility: Can be broken into smaller units.
• Durability: Lasts a long time.
• Uniformity: All units are the same.
• Limited supply: Not too much in circulation.
• Acceptability: Widely accepted as payment.

Money Supply Definition

• Money supply is the total amount of money available in an economy at a specific time.

Savings Account Definition

• A savings account is a bank account that allows for deposit and withdrawal of funds, often with low interest rates.

Federal Reserve Act Establishment Year

• The Federal Reserve Act was established in 1913.

Federal Reserve Bank Components

• The Federal Reserve System (the Fed) is composed of the Board of Governors in Washington D.C., 12 Federal Reserve Banks, and member banks.

Federal Open Market Committee (FOMC) Definition

• The FOMC is the Federal Reserve committee that directs open market operations.

Federal Reserve Actions (Examples)

• Setting monetary policy to control inflation and unemployment.
• Supervising and regulating banks.
• Maintaining the stability of the financial system.

Three Types of Reserves

• Required reserves: Reserves banks are legally required to hold.
• Excess reserves: Reserves banks hold above what is legally required.
• Vault cash: Physical currency kept in the bank’s vault..

Financial Institution Functions (Examples)

• Accepting deposits.
• Providing loans.
• Managing investments.

Mortgage Definition

• A loan to purchase a house.

Credit Card vs. Debit Card

• Credit cards allow borrowing to cover purchases, which you repay later.
• Debit cards deduct money directly from your account to pay.

Interest & Principal

• Interest is the cost of borrowing money.
• Principal is the amount of money borrowed initially.

US Financial Institutions (Examples)

• Bank of America, JPMorgan Chase.

Investment Definition

• Investment is the commitment of money or resources in the expectation of future gain or profit.

Financial Intermediaries & Examples

• Financial intermediaries connect savers and borrowers in the economy.
  • Banks, Credit Unions

Diversification Definition

• Diversification is reducing risk by spreading investments among various assets.

Certificate of Deposit (CD) Definition

• A CD is a time deposit with a fixed interest rate and maturity date.

Bond Definition & Components

• A bond is a loan made by an investor to a borrower (government or corporation).
  • Face value (the amount paid at maturity).
  • Interest rate.
  • Maturity date (when the loan is repaid).

Bond Rating Explanation

• Bond ratings indicate the probability of default by the bond issuer.

Bond Advantages & Disadvantages

• Advantage: Potentially predictable steady income stream.
• Disadvantage: Fixed returns, loss if price drops.

Bond Types (Examples)

• Corporate bonds.
• Government bonds.

Capital Gains Definition

• Capital gains are profits earned from selling assets for more than their purchase price.

Income & Growth Stock Definition

• Income stocks: Stocks that pay consistently high dividends.
• Growth stocks: Stocks expected to show rapid growth.

Common vs. Preferred Stock

• Common stockholders have voting rights and share in profits.
• Preferred stockholders have priority in dividends and are paid before common shareholders during liquidation.

Stock Trading Location

• Stock exchanges (e.g., New York Stock Exchange, Nasdaq).

Durable vs. Nondurable Goods

• Durable goods last a long time.
• Nondurable goods are used up quickly.

Business Cycle & Phases

• Short-term fluctuations in economic activity.
  • Expansion: Increasing economic activity.
  • Peak: Highest point of economic activity.
  • Contraction: Decreasing economic activity.
  • Trough: Lowest point of economic activity.

Economic Variables Affecting Business Cycle (Examples)

• GDP, Inflation, Consumer spending, Investment.

Unemployment Definition & Types

• Unemployment is when people who are actively seeking work are unable to find employment.
  • Frictional unemployment: Short-term joblessness.
  • Structural unemployment: Long-term joblessness due to a mismatch between skills and jobs.

Unemployment Calculation

• Calculated using the unemployment rate.

Price Level Rise Theories (Examples)

• Demand-pull inflation: Excessive demand pushing prices up.
• Cost-push inflation: Rising production costs driving prices upward.
• Quantity theory of money: Increased money supply leads to inflation.

Hyperinflation Definition

• Rapid, uncontrolled increase in the overall price level of goods and services in an economy.

Explore key concepts in macroeconomics and the definitions related to money. This quiz covers various types of money, characteristics, and the money supply. Dive into the essential economic terminologies that shape our understanding of the economy.