Ch 15 - Monetary Policy Flashcards
monetary policy
the use of money and credit controls to influence macroeconomic outcomes
interest rate
the price paid for the use of money
money supply (M1)
currency held by the public, plus balance in transactions accounts
money supply (M2)
M1 plus balances in most savings accounts and money market mutual funds
demand for money
the quantities of money people are willing and able to hold at alternative interest rates, ceteris paribus
portfolio decision
the choice of how (where) to hold idle funds
transactions demand for money
money held for the purpose of making everyday market purchases
precautionary demand for money
money held for unexpected market transactions or for emergencies
speculative demand for money
money held for speculative purposes, for later financial opportunities
equilibrium rate of interest
the interest rate at which the quantity of money demanded in a given time period equals the quantity of money supplied
federal funds rate
the interest rate for interbank reserve loans
liquidity trap
the portion of the money demand curve that is horizontal; people are willing to hold unlimited amounts of money at some (low) interest rate
equation of exchange
money supply (M) * velocity of circulation (V) = level of aggregate spending (P * Q)
income velocity of money (V)
the number of times per year on average, a dollar is used to purchase final gods and services; (P * Q) / M
natural rate of unemployment
long-term rate of unemployment determined by structural forces in labor and product markets
