Macroeconomics Flashcards
What primarily controls interest rates?
Market Forces - the FED does not control all interest rates
What is the Fed Funds Rate (FFR)
Fed policy rate - signals the fed’s stance on policy, typically
What are some other widely used reference rates for the fed funds rate?
3 month treasury bill and 10 year treasury bill
why does the Fed set rate policy?
The aim is to influence other interest rates in the economy
What is Term Structure
tie between rates of different durations. typically move together over time.
ex: 3 month treasury vs 10 year treasury
What is Risk Structure
tie between rates for different risk exposure - move together over time
ex. treasury bill and prime rate
What are “Real” interest rates
nominal Interest adjusted for Inflation
How do nominal interest rates typically move?
with inflation, but not lock step
What are the 4 forces on GDP and are the part of monetary or fiscal policy?
Consumption - monetary
investment - monetary
government spending - fiscal
net export - fiscal
What are the “lags” in policy action?
Recognition Lag - Takes time to recognize an issue
implementation lag - takes time to implement change
effectiveness lag - it takes time to notice change
What does Aggregate Supply Cause
Short Run Positive slope - higher prices
big change in wages, other key costs, productivity
What is part of the long run aggregate supply?
Potential GDP = Labor market, and Productivity
what causes a shift in aggregate demand?
public behavior change, or shock
How can policy action be used to impact aggr. demand
fiscal policy - income tax cut to boost consumer spending
monetary action - interest rates change to impact big spending
