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# MGT411 Money & Banking-GLOSSARY

 AD : The abbreviation for aggregate demand, which is the total (or aggregate) real expenditures on final goods and services produced in the domestic economy that buyers would will and able to make at different price levels, during a given time period (usually a year). Aggregate demand (AD) is one half of the aggregate market analysis; the other half is aggregate supply. Aggregate demand, relates the economy's price level, measured by the GDP price deflator, and aggregate expenditures on domestic production, measured by real gross domestic product. The aggregate expenditures are consumption, investment, government purchases, and net exports made by the four macroeconomic sectors (household, business, government, and foreign).

 AD CURVE : The aggregate demand curve, which is a graphical representation of the relation between aggregate expenditures on real production and the price level, holding all ceteris paribus aggregate demand determinants constant. The aggregate demand, or AD, curve is one side of the graphical presentation of the aggregate market. The other side is occupied by the aggregate supply curve (which is actually two curves, the long-run aggregate supply curve and the short-run aggregate supply curve). The negative slope of the aggregate demand curve captures the inverse relation between aggregate expenditures on real production and the price level. This negative slope is attributable to the interest-rate effect, real-balance effect, and net-export effect.

 AD-AS ANALYSIS : An economic model relating the price level and real production that is used to analyze business cycles, gross domestic product, unemployment, inflation, stabilization policies, and related macroeconomic phenomena. The AS-AD model, inspired by the standard market model, captures the interaction between aggregate demand (the buyers) and short-run and long-run aggregate supply (the sellers).

 ADVERSE SELECTION : When a negotiation between two people with different amounts of information, that is, asymmetric information, restricts the quality of the good traded. This typically happens because the person with more information is able to negotiate a favorable exchange. This is frequently referred to as the "market for lemons."

 Aggregate supply : The total (or aggregate) real production of final goods and services available in the domestic economy at a range of price levels, during a given time period. Aggregate supply (AS) is one half of the aggregate market analysis; the other half is aggregate demand. Aggregate supply, relates the economy's price level, measured by the GDP price deflator, and aggregate domestic production, measured by real gross domestic product. The aggregate supply relation is generally separated into long-run aggregate supply, in which all prices and wages and flexible and all markets are in equilibrium, and short-run aggregate supply, in which some prices and wage are not flexible and some markets are not in equilibrium.

 Aggregate supply curve : A graphical representation of the relation between real production and the price level, holding all ceteris paribus aggregate supply determinants constant. There are actually two separate aggregate supply curves, one for the long run and one for the short run. These aggregate supply curves are one side of the graphical presentation of the aggregate market. The other side is occupied by the aggregate demand curve.

Asymmetric information :

The economics of information search tells us that everyone falls short of having perfect information. It suggests that everyone will have different information about different things.

 Bank : A financial organization that accepts deposits, makes loans, and directly controls a significant portion of the nation's money supply. In the olden days of the economy (before 1980), a bank was easy to identify because it had the word "bank" in it's name -- such as "First National Bank", "Second National Bank", etc. However, after several laws were passed in the early 1980s to reform and deregulate the banking industry, the term bank has come to functionally include other financial institutions that previously went by the titles of "Savings and Loan," "Credit Union," and "Mutual Savings Banks." These institutions are operationally considered banks because they all perform "banking" functions -- especially accepting checking account deposits and making loans.

 Bank assets : What a bank owns, including loans, reserves, investment securities, and physical assets. Bank assets are typically listed on the left-hand side of a bank's balance sheet. Bank liabilities, what a bank owes, are listed on the right-hand side of a bank's balance sheet. Net worth is the difference between assets and liabilities. The largest asset category of most banks is loans, which generates interest revenue. A critical asset category used to maintain the safety of deposits is reserves (vault cash and Federal Reserve deposits).

 Bank balance sheet : A record of the assets, liabilities, and net worth of a bank at a given point in time. Assets are what a bank owns. Liabilities are what a bank owes. Net worth is the difference between the two and what is claimed by or owed to the owners of the bank. By definition, a balance sheet must balance. The assets on one side are equal to the liabilities and net worth on the other.

 Bank failure : In principle, this results when a bank's liabilities exceed assets for an extended period and the bank is forced to go out of business. This is comparable to other types of business that go bankrupt. However, because banks are heavily regulated by government entities, including the Federal Reserve System, Federal Deposit Insurance Corporation, and Comptroller of the Currency, bank failure does not necessarily mean that the bank ceases to operate. In May cases, such a failure means the operation of the bank is taking over by one of the government entities. The troubled bank might also be allowed or "encouraged" to merge with another, healthier bank.

 Bank liabilities : What a bank owes, including most notably customer deposits. Bank liabilities are typically listed on the right-hand side of a bank's balance sheet. Bank assets, what a bank owns, are listed on the left-hand side of a bank's balance sheet. Net worth is the difference between assets and liabilities. The most important liability category of most banks is checkable deposits, which is part of the economy's M1 money supply. The largest liability category includes other types of deposits (especially savings deposits, certificates of deposit, and money market deposits) that enter into the M2 and M3 monetary aggregates.

 Bank reserves : The "money" that banks use to conduct day-to-day business, including cashing checks, satisfying customer’s withdrawals, and clearing checks between accounts at different banks. The "money" in question includes vault cash and Federal Reserve deposits. Specifically, vault cash is the paper money and coins that a bank keeps on the bank premises (both in the vault and in teller drawers), which is used to "cash" checks and otherwise provide the funds that customers withdraw.

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Current yield : The yield or return on a financial asset calculated as the annual rate of return on the purchase price. The current yield is not necessarily equal to the yield to maturity or the coupon rate. For example a \$100,000 corporate bond with a 5% coupon rate that is purchased at a discount of \$95,000 has a current yield of 5.26%.

Coupon rate : The annual rate of return on a legal claim or financial asset (usually a bond) stated as a percent of par value. If, for example, a \$100,000 corporate bond has a fixed payment of \$5000 a year, then the coupon rate is 5%. The coupon rate is not necessarily, and generally is not, the same as the current yield or yield to maturity of a financial asset.

Credit union : A non-profit depository institution chartered by the National Credit Union Administration that was established to provide members of specific group, such as employees of a company, with low-cost banking services. However, credit unions have expanded their activities and now provide most of the services of traditional banks, including checkable deposits.
Checkable deposits : Checking account deposits maintained by banks, savings and loan associations, credit unions, or mutual savings banks. These accounts, also termed transactions deposits, let customers transfer funds easily and quickly to another person, which makes them ideally suited for use as money. Checkable deposits are typically between 60 and 70 percent of the M1 money supply.
Current account : One of two parts of a nation's balance of payments (the other is capital account). It is a record of all trade, exports and imports, between a nation and the rest of the world. The current account is separated into merchandise, services, and what's called unilateral transfers. The merchandise part is nothing other than the well-known balance of trade. There's also a lesser known balance of services -- the difference between services imported and exported.

Credit : A 'credit' is a sum of money that is paid into your account increasing your account balance. 'Credit' or 'Cr' is also used to describe when your account has money in it.

Credit Card : A card that allows you to buy goods, services and obtain cash advances on credit. You can pay your monthly bill in full or in installments. ASB has a range of credit cards to suit your needs including a Credit Card for Tertiary students with no annual fee for the first 12 months. Conditions apply.

Credit Rating : This is the rating which an individual (or company) gets from the credit industry. This is obtained by the individual’s credit history, the details of which are available from specialist organizations.

Capital : One of the four basic categories of resources, or factors of production. It includes the manufactured (or previously produced) resources used to manufacture or produce other things. Common examples of capital are the factories, buildings, trucks, tools, machinery, and equipment used by businesses in their productive pursuits. Capital's primary role in the economy is to improve the productivity of labor as it transforms the natural resources of land into wants-and-needs-satisfying goods.

Central bank : The banking authority of a nation that's in charge of ensuring a sound money supply and conducting the country's monetary policy. It's usually authorized by, and works closely with, the government to achieve full employment, low inflation rates , economic growth, and all of the other goals that make people happy, healthy, and wise.

Consumer price index : An index of prices of goods and services typically purchased by urban consumers. The Consumer Price Index, commonly known by its abbreviation, CPI, is compiled and published monthly by the Bureau of Labor Statistics (BLS), using price data obtained from an elaborate survey of 25,000 retail outlets and quantity data generated by the Consumer Expenditures Survey. The CPI is unquestionably one of the most widely recognized macroeconomic price indexes, running second only to the Dow Jones Averages in the price index popularity contest. It is used not only as an indicator of the price level and inflation, but also to convert nominal economic indicators to real terms and to adjust wage and income payments (such as Social Security) for inflation.

Commodity money : A medium of exchange (money) with both value in use and value in exchange. Commodity money is first and foremost a commodity that provides users with satisfaction of their wants and needs. However, it also has the secondary function of a medium of exchange.

Common stock : The ownership shares in a corporation that have legal claim to the corporation's assets. Stock is usually dividend into two types, common stock and preferred stock. Preferred stock has first claim to the corporations’ net assets, and common stock comes in second. However, if a corporation has no preferred stock, the common stock has exclusive claim. Most stocks are negotiable and are traded one on a stock market.

Demand Deposit Account (DDA) :

Deposits held at banks which the owner can withdraw instantly upon demand-either by check or electronically.

Debit card :

An increasing popular means of accessing the funds in a bank checking account. While debit cards look (and taste) almost exactly like credit cards, they are fundamentally different in how they are processed on a bank's end of the transaction. A credit card works through a liability (a loan with the bank). A debit card works through an asset (a checkable deposit with the bank). As such, debit cards are better suited for the title "plastic money" than credit cards.

Default risk :

The probability that a borrowing agent will not pay in full the agreed interest and/or principal. A default risk can be assigned to any bond or loan agreement. Of course, there are some instruments considered default-risk-free, that is, instruments for which the probability that a borrowing agent will not pay is zero.

Deposit multiplier :

The magnified change in checkable deposits resulting from a change in bank reserves. The simple deposit multiplier is the inverse of the required-reserves ratio. If banks keep 10 percent of their deposits in reserves, then the deposit multiplier is the inverse of 10 percent, or 10.

Dividend : The portion of a corporation's after-tax accounting profit that's paid to shareholders or owners. Corporate managers usually try to pay the shareholders some minimum dividend that's comparable to returns from other financial markets--such as the interest on government securities or corporate bonds--to keep the owners from selling off the company's stock. That portion of after-tax accounting profit that's not paid out as dividends is typically invested in capital

 Elastic demand : Relatively small changes in demand price cause relatively larger changes in quantity demanded. Elastic demand means that changes in the quantity demanded are relatively responsive to changes in the demand price. An elastic demand has a coefficient of elasticity greater than one (the negative value is ignored).

 Elastic supply : Relatively small changes in supply price cause relatively larger changes in quantity supplied. Elastic supply means that changes in the quantity supplied are relatively responsive to changes in the supply price. An elastic supply has a coefficient of elasticity greater than one.

 Equilibrium : The state that exists when opposing forces exactly offset each other and there is no inherent tendency for change. Once achieved, equilibrium persists unless or until it is disrupted by an outside force.

 Equilibrium price : The price that exists when a market is in equilibrium. In particular, the equilibrium price is the price that equates the quantity demanded and quantity supplied, which is termed the equilibrium quantity. Moreover, the equilibrium price is simultaneously equal to the both the demand price and supply price. In a market graph, like the one displayed here, the equilibrium price is found at the intersection of the demand curve and the supply curve. The equilibrium price is also commonly referred to as the market-clearing price.

 Equilibrium quantity : The quantity exchanged between buyers and sellers when a market is in equilibrium. The equilibrium quantity is simultaneously equal to both the quantity demanded and quantity supplied, which means that there is no shortage or surplus in the market. This is, in fact, the prime criterion for market equilibrium. If buyers are able to buy all of the good they're willing and able to buy (no shortage) and sellers are able to sell all of the good they're willing and able to sell (no surplus), then neither side of the market is inclined to change the existing terms of trade. And that's equilibrium.

 Excess reserves : The amount of bank reserves over and above those that the Federal Reserve System requires a bank to keep. Excess reserves are what banks use to make loans. If a bank has more excess reserves, then it can make more loans.
 High-powered money : Also termed the monetary base, the total of currency held by the nonbank public, vault cash held by banks, and Federal Reserve deposits of the banks. This contains the monetary components over which the Federal Reserve System has relatively complete control and is often used as a guide for the Fed's money control ability and monetary policy.

 M1 : The narrow-range monetary aggregate for the U.S. economy containing the combination of currency (and coins) issued by government and held by the nonbank public and checkable deposits issued by banking institutions. M1 contains the two items that function as the medium of exchange. M1 is one of three monetary aggregates tracked and reported by the Federal Reserve System. The other two are designated M2 and M3.

 Implicit price deflator : A price index calculated as the ratio nominal gross domestic product to real gross domestic product. Also commonly referred to as the GDP price deflator, the implicit price deflator is used as an indicator of the economy's average price level. This price index is tabulated and reported every three months along with the gross domestic product, national income, and related measures that make up the National Income and Product Accounts maintained by the Bureau of Economic Analysis (BEA).

 Insurance : Transferring risk to others. The need for insurance occurs because people tend to be risk averse in many circumstances. As such, most of us are willing to pay for certainty. Those who satisfy this need for insurance, insurance companies for example, do so because they can pool risk. If insurance companies know the chance of some loss (an accident, illness, or whatever) and its cost, then they can divide this cost among a large group of risk averse types. The insurance company agrees to pay the cost of the loss and each of the risk averse types pay a risk premium, but get the peace of mind that goes with certainty.

 Risk : The possibility of gain or loss. Risk the calculated probability of different events happening, is usually contrasted with uncertainty the possibility that any number of things could happen. For example, uncertainty is the possibility that you could win or lose \$100 on the flip of a coin. You don't know which will happen, it could go either way. Risk, in contrast, is the 50 percent chance of winning \$100 and the 50 percent chance of losing \$100 on the flip of the coin. You know (or think you know) that your probability of winning or losing is 50 percent because the coin has a 50 percent chance of coming up either heads or tails.

 Risk averse : A person who values a certain income more than an equal amount of income that involves risk or uncertainty. To illustrate, let's say that you're given two options--(A) a guaranteed \$1,000 or (b) a 50-50 chance of getting either \$500 or \$1,500. If you chose option A, then you're risk averse. Both options give you the same "expected" values. In other words, if you select option B a few hundred times, then your average amount over those few hundred times is \$1,000.

 Risk premium : This has two very closely related uses. First, it's what risk averse people are willing to pay to avoid a risky situation. For example, if you would be equally happy with a guaranteed \$900 or 50-50 chances of getting\$500 or \$1,500, then you’re risk premium is \$100. Second, it's the extra percentage points added to an interest rate to compensate for the risk of a loan. As a general rule, each 1 percent chance of default on a loan adds a risk premium of about 1 percent to the interest rate.

 Risk neutral : A person who values a certain income the same as an equal amount of income that involves risk or uncertainty. Let's say that you're given two options--(A) a guaranteed \$1,000 or (b) a 50-50 chance of getting either \$500 or \$1,500. If you don't really care which option you chose, because both options have the same "expected" values, then you're risk neutral.

 Inventory : Stocks of finished products, intermediate goods, raw materials, and other inputs that businesses have on hand. One big reason to keep inventories is to maintain a continuous stream of production by avoiding any supply shortages. Another big reason is to avoid the loss of sales because finished products are unavailable when a customer is ready, willing, and able to buy.

 Liquidity : The ease of converting an asset into money (either checking accounts or currency) in a timely fashion with little or no loss in value. Money is the standard for liquidity because it is, well, money and no conversion is needed. Other assets, both financial and physical have varying degrees of liquidity. Savings accounts, certificates of deposit, and money market accounts are highly liquid. Stocks, bonds, and are another step down in liquidity. While they can be "cashed in," price fluctuations, brokerage fees, and assorted transactions expenses tend to reduce their money value. Physical assets, like houses, cars, furniture, clothing, food, and the like have substantially less liquidity.

 LRAS : The abbreviation of long-run aggregate supply, which is the total (or aggregate) real production of final goods and services available in the domestic economy at a range of price levels, during a period of time in which all prices, especially wages, are flexible, and have achieved their equilibrium levels. Long-run aggregate supply (LRAS) is one of two aggregate supply alternatives, distinguished by the degree of price flexibility; the other is short-run aggregate supply (SRAS).

 LRAS curve : The abbreviation of long-run aggregate supply, which is the long-run relation between real production and the price level, holding all ceteris paribus aggregate supply determinants constant. The LRAS curve is one of two curves that graphical capture the supply-side of the aggregate market; the other is the short-run aggregate supply curve (SRAS). The demand-side of the aggregate market is occupied by the aggregate demand curve. The vertical LRAS curve captures the independent relation between real production and the price level that exists in the long run.

 M2 : The medium-range monetary aggregate for the U.S. economy containing the combination of M1 (currency and checkable deposits) and short-term, small denomination near monies. M2 contains financial assets that either function directly as money for the U.S. economy or can be easily and quickly converted into money. The near monies added to M1 to derive M2 include savings deposits, certificates of deposit, money market deposits, and money market mutual funds. M2 is one of three monetary aggregates tracked and reported by the Federal Reserve System. The other two are designated M1 and M3.

 M3 : The wide-range monetary aggregate for the U.S. economy containing the combination of M2 (currency, checkable deposits, and assorted savings deposits) and large-denomination, institutional near monies. M3 contains financial assets that are relatively liquid, but not quite as liquid as those found in M1 or M2. The near monies added to M2 to derive M3 include large denomination certificates of deposit, institutional money market mutual funds, repurchase agreements, and Eurodollars. M3 is one of three monetary aggregates tracked and reported by the Federal Reserve System. The other two are designated M1 and M2.
 Government Loans : It represents loans to provinces, cities and municipalities to finance the construction of self-liquidating projects and other public improvements such as markets, waterworks systems, public town halls, slaughterhouses and electric plants, and for cadastral surveys and purchase of heavy equipment and machinery. (Development Bank of the Philippines)

 Government Securities : These are bonds, securities, promissory notes or other evidence of indebtedness of the Government of the Philippines (e.g., Treasury Bills, Treasury Notes, and Government Bonds). (Social Security System)

 Government Service Insurance System (GSIS) : A government-owned and controlled corporation which provides retirement annuities, insurance and other services for government employees, and insurance for government-owned properties.

 Repayments of Investments : Amortization payment applied to the principal amount of loan or investments in salary loan, policy loan or real estate loan. (Government Service Insurance System)

 Short Term Notes : It is the written promise to pay within a fixed time at fixed interest rate issued by the debtor. (Government Service Insurance System)

 Social Security System (SSS) : The government-sponsored scheme to provide old age, death, disability and sickness benefits to workers in the private sector. This program is compulsory for all paid employees not over 60 years and for their employers.

 Surplus : Increments in net worth arising from net earnings, appreciation, donations, grants, etc. (Government Service Insurance System)

 Demand Deposit Account (DDA) : Deposits held at banks which the owner can withdraw instantly upon demand-either by check or electronically.

 Negotiated exchange rate : Systems with negotiated exchange rates, as opposed to fixed exchange rates (as were attempted in the former Soviet Union, and more successfully in small Time Dollars communities) under which the value of the currency is negotiated as part of the transaction itself. Currently under floating exchange rates, all national currencies have negotiated exchange rates among each other.

 Debit card : An increasing popular means of accessing the funds in a bank checking account. While debit cards look (and taste) almost exactly like credit cards, they are fundamentally different in how they are processed on a bank's end of the transaction. A credit card works through a liability (a loan with the bank). A debit card works through an asset (a checkable deposit with the bank). As such, debit cards are better suited for the title "plastic money" than credit cards.

 Default risk : The probability that a borrowing agent will not pay in full the agreed interest and/or principal. A default risk can be assigned to any bond or loan agreement. Of course, there are some instruments considered default-risk-free, that is, instruments for which the probability that a borrowing agent will not pay is zero.

 GDP : The total market value of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year. This is the government's official measure of how much output our economy produces.

 Nominal GDP : The total market value, measured in current prices, of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year. The key is that nominal gross domestic product is measured in current or actual prices; the prices buyers actually pay for goods and services purchased. Nominal gross domestic product is also termed current gross domestic product.

 Real GDP : The total market value, measured in constant prices, of all goods and services produced within the political boundaries of an economy during a given period of time, usually one year. The key is that real gross domestic product is measured in constant prices, the prices for a specific base year. Real gross domestic product, also termed constant gross domestic product, adjusts gross domestic product for inflation. You might want to compare real gross domestic product with the related term nominal GDP.

 Growth rate : The percentage change in a variable from one year to the next. The growth rate, in effect, measures how much the variable is growing over time. In that economists (as well as regular human people) are quite interested in economic growth, progress, and a lessening of the scarcity problem, growth rates for different economic variables are closely scrutinized. Among the most important are: real gross domestic product, population, and per capita income. Growth rates are important not only for the analysis of long-run progress (economic growth, economic development), but also short-run instability (business cycles)

 Hyperinflation : Exceptionally high inflation rates. While there are no hard and fast guidelines, an annual inflation rate of 20 percent or more is likely to get you the hyperinflation title. Some countries in the past have been quite good at creating hyperinflation. An annual inflation rate of 1,000 percent has not been uncommon. On occasion, the trillion percent inflation rate mark has been achieved.

 Inflation rate : The percentage change in the price level from one period to the next. The two most common price indices used to measure the inflation are the Consumer Price Index (CPI) and the GDP price deflator.

 Deposit multiplier : The magnified change in checkable deposits resulting from a change in bank reserves. The simple deposit multiplier is the inverse of the required-reserves ratio. If banks keep 10 percent of their deposits in reserves, then the deposit multiplier is the inverse of 10 percent, or 10.

 Dividend : The portion of a corporation's after-tax accounting profit that's paid to shareholders or owners. Corporate managers usually try to pay the shareholders some minimum dividend that's comparable to returns from other financial markets--such as the interest on government securities or corporate bonds--to keep the owners from selling off the company's stock. That portion of after-tax accounting profit that's not paid out as dividends is typically invested in capital.

 Elastic demand : Relatively small changes in demand price cause relatively larger changes in quantity demanded. Elastic demand means that changes in the quantity demanded are relatively responsive to changes in the demand price. An elastic demand has a coefficient of elasticity greater than one (the negative value is ignored).

 Elastic supply : Relatively small changes in supply price cause relatively larger changes in quantity supplied. Elastic supply means that changes in the quantity supplied are relatively responsive to changes in the supply price. An elastic supply has a coefficient of elasticity greater than one.

 Equilibrium : The state that exists when opposing forces exactly offset each other and there is no inherent tendency for change. Once achieved, equilibrium persists unless or until it is disrupted by an outside force.

 Equilibrium price : The price that exists when a market is in equilibrium. In particular, the equilibrium price is the price that equates the quantity demanded and quantity supplied, which is termed the equilibrium quantity. Moreover, the equilibrium price is simultaneously equal to the both the demand price and supply price. In a market graph, like the one displayed here, the equilibrium price is found at the intersection of the demand curve and the supply curve. The equilibrium price is also commonly referred to as the market-clearing price.

 Equilibrium quantity : The quantity exchanged between buyers and sellers when a market is in equilibrium. The equilibrium quantity is simultaneously equal to both the quantity demanded and quantity supplied, which means that there is no shortage or surplus in the market. This is, in fact, the prime criterion for market equilibrium. If buyers are able to buy all of the good they're willing and able to buy (no shortage) and sellers are able to sell all of the good they're willing and able to sell (no surplus), then neither side of the market is inclined to change the existing terms of trade. And that's equilibrium.

 Excess reserves : The amount of bank reserves over and above those that the Federal Reserve System requires a bank to keep. Excess reserves are what banks use to make loans. If a bank has more excess reserves, then it can make more loans.

 Face value : The stated, or face, value of a legal claim or financial asset.
 Face value : The stated, or face, value of a legal claim or financial asset.

 Maturity : That date at which the principal on a bond or similar financial asset needs to be repaid. Maturity dates can be anywhere from a few hours to 30 or more years. For example, government securities are classified by their maturity dates, with Treasury bills maturing in one year or less, Treasury notes in 1 to 10 years, and Treasury bonds in 10 years or more. Under normal (no recessionary) conditions, shorter maturity periods carry lower interest rates, while longer maturities need higher interest rates to compensate for the uncertainty of tying funds up for longer periods.

 Fiscal policy : Use of the federal government's powers of spending and taxation to stabilize the business cycle. If the economy is mired in a recession, then the appropriate fiscal policy is to increase spending or reduce taxes--termed expansionary policy. During periods of high inflation, the opposite actions are needed--concretionary policy. The consequences of fiscal policy are typically observed in terms of the federal deficit.

 Stabilization policies : Economic policies undertaken by government to counteract business cycle fluctuations and prevent high rates of unemployment and inflation. These are also termed counter-cyclical policies. To counter a business cycle contraction and high rates of unemployment, expansionary policies that promote increasing economic activity are appropriate. To counter an inflationary expansion, concretionary policies are recommended.

 Certificate of deposit : A type of savings account, commonly termed CDs, maintained by banks and other depository institutions that pays higher interest rates that normal savings accounts, but requires the funds not be withdrawn for a specified time period. Small denomination CDs (under \$100,000) are a component of the M2 monetary aggregate. Larger denomination CDs (over \$100,000) are a component of the M3 monetary aggregate.

 Repurchase agreement : A common type of bank account in which funds are transferred from one account to another, then automatically transferred back after a short period, usually overnight. In effect, a bank customer buys a legal claim from a bank with the understanding that the bank will automatically "repurchase" this legal claim back after a specified time period. Repurchase agreements were original developed as a round about means of paying interest on business checking, which such interest paying was legally prohibited. Repurchase agreements are near monies added to M1 to obtain broader monetary aggregates, M2 and M3.
 Near money : Assets that are highly liquid, and can be easily exchanged for money, but can not be used directly to purchase goods. The best examples are savings accounts, certificates of deposit, and similar bank accounts. These savings near monies are added to M1 to derived M2. Several investment type near monies are added to M2 to derived M3.

 Monetary aggregate : Any of four basic measures of money, or liquid assets for the economy--M1, M2, M3, and L. The Federal Reserve System, as part of their regulatory duties, regularly publish these four monetary aggregates. The smallest, M1, is used as THE medium of exchange in the economy. However, M2 provides savings that are easily converted to M1 and is considered by many as the best measure of spendable assets.

 Market equilibrium : The state of equilibrium that exists when the opposing market forces of demand and supply exactly offset each other and there is no inherent tendency for change. Once achieved, a market equilibrium persists unless or until it is disrupted by an outside force. A market equilibrium is indicated by equilibrium price and equilibrium quantity.

 Supply shock : A disruption of market equilibrium (that is, a market adjustment) caused by a change in a supply determinant and a shift of the supply curve. A supply shock can take one of two forms--an supply increase or a supply decrease. An increase in supply is illustrated by a rightward shift of the supply curve and results in an increase in equilibrium quantity and a decrease in equilibrium price. A decrease in supply is illustrated by a leftward shift of the supply curve and results in a decrease in equilibrium quantity and an increase in equilibrium price.

 Market adjustment : The economic analysis of the changes in market equilibrium caused by changes in the demand determinants and supply determinants. Given the two curves that comprise the market--the demand curve and the supply curve; each of which can increase or decrease; market adjustment comes in eight varieties. Four involve a shift of either the demand curve or the supply curve. The other four involve a shift of both the demand curve and the supply curve.

 Standard of deferred payment : The money function in which money is used as a standard benchm

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