Quiz 6 Flashcards
Federal Funds Rate (FFR)
The interest rate banks charge one another on overnight loans made out of their excess reserves. The FFR is the interest rate targeted by the Fed through its open-market operations.
Forex Market (Foreign Exchange Market)
The market in which international buyers and sellers exchange foreign currencies for one another to buy and sell goods, services, and assets from various countries. It is where a currency’s exchange rate relative to other currencies is determined.
Inflationary Gap
The difference between a nation’s equilibrium level of output and its full employment level of output when the nation is overheating (Producing beyond its full employment level).
Law of Increasing Opportunity Cost
As more of a particular product is produced, the opportunity, in terms of what must be given up of other goods to produce each unit of the product, increases. Explains the convex shape of a nations Production possibilities curve.
M2
A more broadly defined component of the money supply. Equal to M1 plus savings deposits, money-market deposits, mutual funds, small-time deposits.
Money Demand
The sum of the transaction demand and the asset demand for money. Inversely related to the nominal interest rate.
Monetary Policy
The central bank’s manipulation of the supply of money aimed at raising or lowering interest rates to stimulate or contact the level of aggregate demand to promote the macroeconomic objectives of price level stability and full employment.
Official Reserves
To balance two accounts in the balance of payments (current and financial accounts), a country’s official foreign exchange reserves measures the net effect of all the money flows from the other accounts.
Opportunity Cost
What must be given up to have anything else. Opportunity costs are not necessarily monetary costs, but rather include what you could do with the resources you use to undertake an activity or exchange.
Phillips Curve (short run)
A downward sloping curve showing the short-run inverse relationship between the level of inflation and the level of unemployment.
Production Possibilities Curve (PPC)
A graph that shows the various combinations of output that the economy can produce given the available factors of the production and the available production technology.
Structural Unemployment
Unemployment caused by changes in the structure of demand for goods and in technology; workers who are unemployed because they do not match what is in demand by producers in the economy or whose skills have been left behind by economic advancement.
Supply Shock
Anything that leads to a sudden, unexpected change in aggregate supply. Can be negative (decreases AS) or positive (increases AS). May include a change in energy prices, wages, or business taxes, or may result from a natural disaster or a new discovery of important resources.
Trade Deficit
When a country’s total spending on imported goods and services exceeds its total revenues from the sale of exports to the rest of the world. Synonymous with a deficit in the current account of the balance of payments and with a negative net export component of GDP.
Trade Surplus
When a country’s sale of exports exceeds its spending on imports. Synonymous with a surplus in the current account of the balance of payments.
