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AP MacroEconomics > Unit 4 > Flashcards

Unit 4 Flashcards

1
Q

Commodity money

A

Money that has intrinsic value (gold or silver)

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2
Q

Fiat money

A

Money with no intrinsic value ex cash

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3
Q

Stocks

A

Shares of a company you can own

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4
Q

Bond

A

An iOU made by the government

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5
Q

Transaction demand for money

A

When a person demands money in order to buy something as in a transaction

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6
Q

Asset demand money

A

When money is demanded to buy assets, such as stocks and stuff

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7
Q

Reserve requirements

A

The required percent set by the fed of money that the banks need to hold.

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8
Q

What reserve requirement does. And how it shifts

A

It changes the money supply

  • increase for a decrease in the MS
  • Decrease for a decrease in MS
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9
Q

What is the discount rate and how does it shift

A

The minimum interest rate set by banks for lending to other banks

  • Increase discount rate to reduce MS
  • decrease discount rate to increase MS
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10
Q

Open market operations and how they shift

A

The buying and selling of treasury bonds

Buy bonds to increase the money supply
Sell bonds to decrease the money supply

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11
Q

How are Interest rates related to investment spending

A

Inversely. High interest, means small investments

More money made on interest

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12
Q

How is the money supply related to the AG

A

They are directly related

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13
Q

The three functions of money

A

Medium of exchange, unit of account, store of value

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14
Q

Money multiplier

A

1/rr this is multiplied with the amount the bank can lend out, not the total deposit

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15
Q

Money market graph

A

Supply of money (vertical)
Demand for money(downward sloping)
Y axis: nominal interest rates
X axis: quantity of money

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16
Q

Investment market graph

A 
Investment demand( downward sloping)
Y axis:rate of interest 
X axis:amount of investment
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17
Q

How does and increase in money supply affect money market

A

Shifts MS to the right

18
Q

How does and increase in money supply affect investment

A

Shift along the curve to the right

19
Q

How does and increase in money supply affect AD/AS

A

Increase aggregate demand

20
Q

How the fed fixes a recessionary gap

A

Decrease reserve requirements
Decrease discount rate
Buy treasury bonds

21
Q

How does the Fed combat an inflationary gap

A

Raise reserve requirement
Raise discount rate
Sell treasury bonds

22
Q

Wealth

A

The value of accumulated savings

23
Q

Physical assets

A

A valid on tangible objects that gives the owner right to claim it as a form of money

24
Q

Financial asset

A

Paper claim that entitles buyer to future income from seller

25
Q

Liability

A

Requirement to pay money in the future

26
Q

Liquid

A

How quickly something can be converted into cash without s loss of value

27
Q

Illiquid

A

Can’t be converted into money without loss of value

28
Q

M1 money

A

Currency in circulation, travelers checks, and checkable bank deposits

29
Q

M2 money

A

All of M1 plus everything that can be converted into cash

30
Q

Shifters of money demand curve

A

Aggregate price level (directly related)
GDP (directly related)
Information technology (inversely related)
Income (directly related)

31
Q

Liquidity preference model of interest rates.

A

Interest rate is determined by the supply and demand of money

32
Q

Money supply curve

A

A vertical curve, can be moved by the federal reserve

33
Q

Bank run

A

Withdraw phenomenon where many bank depositors try to withdraw their funds due to fear of bank failure

34
Q

Deposit insurance

A

Guarantees that deposit will be paid even if there is no funds. Fed will pay

35
Q

How do banks affect the money supply

A

Remove currencies in circulation

Create money though loans and deposits

36
Q

How do open market operations change money supply

A 
Buy big (increase)
Sell small (reduce)
37
Q

Loanable funds graph

A 
Supply LF (positive slope)
Demand LF (negative slope)
Y axis: interest rate
X axis: quantity of Loanable funds
38
Q

Demand of Loanable funds shifters

A 
Changes in beliefs of rate of return (direct)
Changes in give borrowing (direct)
Crowding out (inverse)
39
Q

Supply of Loanable funds shifters

A 
Private savings change (direct)
Capital inflow (direct)
40
Q

Fisher effect

A

An increase in expected future inflation drives up the nominal interest rate by the same number of points leaving expected and real the same

41
Q

If interest is up a bond costs

A

More

42
Q

If interest rates are low then bonds

A

Are cheap

AP MacroEconomics (5 decks)

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