Question

Define: a. money supply b. currency c. Federal Reserve note d. demand deposit e. savings account f. near-money

Short answer

Money supply is the total of all physical currency and demand deposits. Currency is the widely accepted medium of exchange for goods and services. A Federal Reserve Note is the most common type of U.S. paper currency. Demand deposit is an account from which deposited funds can be withdrawn at any time without any advance notice to the depository institution. A savings account is a deposit account that offers a modest interest rate. Near-money are assets not usable as cash but can be easily converted to cash.

Step-by-step solution

Define Money Supply

Money supply is the total value of monetary assets available in an economy at a specific time. It includes physical currency and demand deposits.

Define Currency

Currency is a system of money in general use in a particular country. It is a medium of exchange for goods and services, created and stored either physically (coins, banknotes) or digitally.

Define Federal Reserve Note

A Federal Reserve Note is a type of banknote issued by the Federal Reserve System, the central banking system of the United States. It is the most common type of U.S. paper currency.

Define Demand Deposit

A demand deposit is a deposit of money that can be withdrawn without prior notice. In other words, it's money you keep at the bank and can use at any time, such as money in your checking account.

Define Savings Account

A savings account is a deposit account held at a bank or other financial institution that provides principal security and a modest interest rate.

Define Near-Money

Near-money refers to assets that are easily convertible into cash, such as short-term government bonds and treasury bills, but cannot be used as cash directly.

Key concepts

Currency

Currency is the primary means through which people exchange goods and services. It represents a system of money in widespread use within a country.
Physical forms of currency include coins and paper money like bills. In the digital age, currency also exists as electronic money.
Each nation typically has a distinct currency, such as the U.S. dollar, the euro, or the Japanese yen. These currencies have value because they are acknowledged by both the government and society as an effective medium for trade and investment.

Federal Reserve

The Federal Reserve, often simply referred to as 'the Fed,' is the central banking system of the United States. It plays a crucial role in the country's economy. It controls the money supply and implements monetary policy.
Among its many functions, the Federal Reserve regulates banks, maintains financial stability, and provides financial services. One of its most recognizable outputs is the creation of Federal Reserve Notes, which are the paper money used in everyday transactions in the U.S.

• Regulates banking institutions
• Controls national interest rates
• Generates the nation's physical currency

Demand Deposit

A demand deposit is like the money you have easily accessible in a checking account. It refers to funds that can be withdrawn instantly without any advanced notice.
This form of deposit enables individuals to make payments or transactions at any moment, providing great liquidity and flexibility.
Some key characteristics of demand deposits include:

• No withdrawal limits
• Used primarily for daily expenses
• Minimal or no interest earnings

Savings Account

A savings account is different from a demand deposit because it is primarily used to save money instead of making frequent withdrawals. It is designed to encourage individuals to save by offering a modest interest rate on deposited funds.
Savings accounts provide the benefit of protecting your principal amount while generating a small revenue.
Important features include:

• Interest earnings
• Restricted on-demand access
• Safeguards for your savings

Near-Money

Near-money describes financial instruments that are not direct currency but can be easily converted to cash. These include assets like certificates of deposit, treasury bills, and money market funds.
Although they are not cash, they are highly liquid and can be quickly traded or converted to meet financial needs.
Traits of near-money include:

• High liquidity
• Short-term investment horizons
• Useful for bridging cash needs