The Monetary System
(Ch. 16)
(Ch. 16)
The three functions of money are medium of exchange, unit of account, and this.
What is a store of value?
According to the Quantity Theory of Money, this variable is the primary cause of inflation in the long run.
What is the quantity/growth of the money supply?
This term refers to the value of a nation’s exports minus the value of its imports.
What are Net Exports or the Trade Balance?
In the market for loanable funds in an open economy, the demand comes from domestic investment and Net Capital Outflow, and the supply of loanable funds comes from this.
What is National Savings (Public + Private)?
This type of money has no intrinsic value and is established as money by government decree.
What is fiat money?
The "Classical Dichotomy" is the theoretical separation of these two types of variables.
What are real and nominal variables?
If a country saves more than it invests domestically, it will have a positive value for this variable.
What is Net Capital Outflow (NCO)?
In the market for foreign-currency exchange, this variable represents the "price" that balances supply and demand. (This X & Y Axis)
What is the real exchange rate?
The Fed’s primary tool for changing the money supply, involving the purchase or sale of U.S. government bonds.
Open-Market Operations?
This equation, M * V = P * Y, relates the quantity of money to the nominal value of output.
What is the Quantity Equation?
This identity states that $NCO$ must always be equal to this other abbreviation.
What is $NX$ (Net Exports)?
When the real exchange rate for the US $ increases, this occurs.
What is appreciation of the US $?
If the reserve ratio is 10%, this is the value of the money multiplier.
What is 10?
The "Fisher Effect" suggests that an increase in the inflation rate causes an equal increase in this specific rate.
What is the nominal interest rate?
The rate at which a person can trade the goods and services of one country for the goods and services of another.
What is the real exchange rate?
This is the main difference between a budget deficit and an investment subsidy in the Open Market Economy.
What is an increase in RGDP?
The interest rate the Fed charges banks for short-term loans.
What is the discount rate?
The resources wasted when inflation encourages people to reduce their money holdings, such as making more frequent trips to the bank.
What are shoe-leather costs?
This institution controls the supply of money.
What is the Federal Reserve?
According to the model, an increase in the government budget deficit does this to the real interest rate and this to the net capital outflow.
What is increases the interest rate and decreases NCO?