15 Monetary Policy Flashcards
management of interest rates and total supply of money in circulation
monetary policy
government policy
monetary policy and fiscal policy
stabilize overall level of output and price through money supply control
monetary policy
collective term for taxing and spending actions of governments
fiscal policy
stabilize economy through changes in gov’t spending/taxation
fiscal policy
types of monetary and fiscal policy
expansionary and contractionary
common thoughts about money
- money is the root of all evil
- time is money
- money doesn’t grow on trees
- when money talks, everybody listens
functions of money
- medium of exchange
- unit of account (measure)
- store of value
value comes from commodity of which it is made, consists of objects that have value in themselves (intrinsic value) as well as value in their use as money
commodity money
decreed by the gov’t and accepted by the people
fiat money
another name for fiat money
legal tender
medium of payment recognized by legal system to settle a financial obligation
fiat money
depends for its value on condifence that it will be generally accepted as a medium of exchange
fiduciary money
issuer promises bearer that it will be exchanged as requested
fiduciary money
bouncing check/no sufficient fund check gives issuer a
penalty
“I Owe You”
IOU
debt instrument/certificate
IOU
credit cards and debt cards
plastic money
money that doesn’t need to be touched to be exchanged
digital money
characteristics of money
- durability
- portability
- divisibility
- stability
- acceptability
↓ money supply
contractionary
↑ interest rate
contractionary
discourages investment spending
contractionary
↓ overall demand
contractionary
used when there is high inflation
contractionary
↑ money supply
expansionary
↓ interest rate
expansionary
stimulates investment spending
expansionary
↑ overall demand
expansionary
cannot touch; funds that are always in the bank
reserve requirement
↑ reserve requirement ↓ money in the economy
contractionary
↓ reserve requirement ↑ money in the economy
expansionary
people pay what to banks
interest rate
what do banks pay to central banks
discount rate
↓ discount rate ↑ loans
expansionary
↑ discount rate ↓ loans
contractionary
the gov’t borrows money from you; gives you a piece of paper in exchange
open-market operations
certificate of debt from gov’t
bonds
give you a lot of profit
bonds
high interest rate
bonds
has maturity (you can only get the funds after a certain amount of time)
bonds
sell gov’t bonds
contractionary
buy back gov’t bonds
expansionary
