Modules 27-29 Flashcards
Allows banks that fall short of the reserve requirement to borrow funds from banks with excess reserves
Federal funds market
The interest rate that banks charge other baks for loans. Determined in the federal funds market.
Federal funds rate
The interest rate the Fed charged on loans to banks
Discount rate
Purchase or sale of government debt by the Fed
Open-market operation
Interest rates on financial assets that mature within a year
Short-term interest rates
Interest rate on financial assets that mature a number of years in the future
Long-term interest rates
Shows the relationship between the quantity of money demanded and the interest rate
Money demand curve
The interest rate is determined by the supply and demand for money
Liquidity preference model of the interest rate
Shows the relationship between the quantity of money supplied and the interest rate
Money supply curve
Hypothetical market that brings together those who want to lend money and those who want to borrow money
Loanable funds market
Profit earned on the project expressed as a percentage of its cost
Rate of return
Occurs when a government deficit drives up the interest rate and leads to reduced investment spending
Crowding out
An increase in expected future inflation drives up the nominal interest rate by the same number of percentage points, leaving the expected real interest rate unchanged
Fisher effect
