Chap 14 Flashcards
monetary policy?
use of money and credit controls to influence macroeconomic
federal funds rate?
interest rate for interbank reserve loans
discounting?
when the Fed is lending reserves directly to private banks
discount rate?
rat of interest the Federal Reserve charges for lending reserves to private banks
portfolio decisions?
choice of how (where) to hold idle funds
open market operation?
when the federal reserve purchases and sells government bonds to alter bank reserves
equation of exchange?
money supply (M) times the velocity of circulation (V) = level of aggregate spending times (PxQ) which is prices times quantity
velocity of money?
number of times per year, on average, a dollar is used to purchase final goods and services
natural rate of unemployment?
long-term rate of unemployment determined by structural forces in labor and product markets
real interest rate?
nominal rate of interest minus the anticipated inflation rate
inflation targeting?
use of an inflation ceiling (target) to signal the need for monetary policy adjustments
Employment targeting?
the use of an unemployment rate threshold (6.5 percent) to signal the need for monetary stimulus
fed controls money supply by use of what three policy tools?
- reserve requirements
- discount rates
- open market operations
how does the fed control reserve requirements and its affect on economy?
it tells them how much they nut save and if they have to save more, they cannot put as much money into economy therefore limiting its growth
what does a change in reserve requirement do cause?
change in:
- excess reserves
- money multiplier
- lending capacity of banking system
