Terms Flashcards
The Federal Reserve’s increasing the money supply and decreasing interest rates to increase real GDP
Expansionary monetary policy
The Federal Reserve’s adjusting the money supply to increase interest rates to reduce inflation.
Contractionary monetary policy
The interest rates banks charge each other for overnight loans.
Federal funds rate
The dual mandate of the Fed
Price stability and high employment
A framework for conducting monetary policy that involves the central bank
announcing its target level of inflation.
Inflation targeting
The actions the Federal Reserve takes to manage the money supply and interest rates.
Monetary policy
Money is acceptable to a wide variety of parties as a form of payment for goods and services.
Ex. You can walk into most stores with a $20 bill and have confidence that the store will accept it.
Medium of exchange
Money allows a way of measuring value in a standard manner.
Ex. We can assign value to objects by giving them a dollar equivalent (either a price or dollar value etc.)
“Cash cant fall apart or decay”
Unit of account
Money allows people to defer consumption to a later date by storing value. Other assets can do this too, but money does it particularly well because it is liquid. Ex. You can walk into most stores with a $20 bill and have confidence that the store will accept it. “Ability to save up to get something.”
Store of value
Money facilitates exchanges across time when we anticipate that its value in the future will be predictable. Ex. We can use money as a means for borrowing and lending because we know (approximately) its value in the future.
Standard of deferred payment
Refers to any money, such as paper currency that is authorized by a central bank or governmental body and that does not have to be exchanged by the central bank for gold or some other commodity money.
Fiat money
The narrowest definition of money:
- The sum of currency in circulation
- Checking account deposits in banks
- Holding of traveler’s checks
M1
A broader definition of the money supply:
- M1
- Savings account deposits
- Small-denomination time deposits
- Balances in money market deposit accounts
- Non-institutional money market fund shares
M2
The amount of money - currency and checking account deposits - that individuals hold.
Demand for money
An unexpected event that causes the short run aggregate supply curve to shift.
Supply shock
A curve that shows the relationship between the price level and the quantity of real GDP supplied.
Long-run aggregate supply (LRAS) curve:
short-run relationship between total spending and real GDP, assuming price level is constant
Aggregate expenditure model
The amount by which consumption spending changes when disposable income changes.
= Change in consumption / change in disposable income
MPC
Change is saving over change in disposable income
MPS
money whose value comes from a commodity of which it is made from (gold based currency that is made of gold)
Commodity money
When multiple banks suffer bank runs at the same time
Bank Panic
A sudden demand to withdraw money from a bank that the bank struggles to meet
Bank Run
Federal Deposit Insurance Corporation’s job is to insure depositors when banks fail, this number can be up to $250,000
FDIC purpose
the quantity of goods and services that firms are willing and able to supply
Aggregate Supply
Personal income − Personal income taxes + transfer payments.
Current disposable income formula
the process of countries becoming more open to foreign trade and investment
Globalization
the quantity of goods and services that can be produced by one worker or by one hour of work
Labor productivity
the purchase or building by a corporation of a facility in a foreign country
Foreign direct investment
the purchase by an individual/firm of stocks/bonds issued in another country
Foreign portfolio investment
a combination of inflation and recession, usually resulting from
a supply shock.
Stagflation
How a change in the price level affects consumption (higher price levels lead to lower consumption)
Wealth Effect
How a change in the price level affects investment (higher price levels lead to lower investment)
Interest-Rate Effect
How a change in the price level affects net exports (higher price levels lead to lower net exports)
International-Trade Effect
