Monetary Policy Flashcards
Money Supply
The quantity of money available in the economy.
Money
Anything that serves as a medium of exchange, a unit of account, and a store of value.
Central Bank
An institution designed to oversee the banking system and regulate the quantity of money in the economy.
Central Bank Reserves
Money held by the central bank and used by commercial banks to make payments between themselves.
Monetary Policy Controls
1) interest rates
2) exchange rates
3) money supply
Interest Rates
The cost of borrowing money.
Exchange Rate
The measure of how much one currency is worth in relation to another.
Expansionary Monetary Policy
Monetary policy that increases aggregate demand.
Monetary Policy
A policy created by the Federal Reserve in order to control the money supply to help adjust inflation and unemployment.
Contractionary Monetary Policy
Monetary policy that reduces aggregate demand.
Monetary policy tools the central banks can use
1)Change in reserve requirements
2)Change in the discount rate
3)Open market transactions
Monetary policy tools the central banks can use
1)Change in reserve requirements
2)Change in the discount rate
3)Open market transactions
Consumption
Spending by households on goods and services, with the exception of purchases of new housing.
Savers
Persons who desire to conserve their monetary funds to the best of their ability.
Discount Rate
The interest rate on the loans that the Fed makes to banks.
