9.4 Money and banking Flashcards
Narrow money
money that can be spent directly
Broad money
money used for spending and saving
Quantity Theory of Money
the theory that links inflation in an economy to changes in the money supply
Fisher equation
the statement that MV = PY
Credit multiplier
the process by which banks can make more loans than deposits available
Liquidity ratio
the proportion of a bank’s assets held in liquid form
Government securities
bills and bonds issued by the government to raise money
Total currency flow
the current plus capital plus financial balances of the balance of payment
Quantitative easing
a central bank buying government bonds from the private sector to increase the money supply
Keynesians
economists who think that government intervention is needed to achieve full employment
Liquidity preference
a Keynesian concept that explains why people demand money
Transactions motive
the desire to hold money for the day-to-day buying of goods and services
Precautionary motive
a reason for holding money for unexpected or unforeseen events
Active balances
the amount of money held by households or firms for possible future use
Speculative motive
a reason for holding money with a view to make future gains from buying financial assets
