Definition, Measurement and Function of Money
This function of money allows it to be used as a measure of the value of different goods and services in comparison with each other
Unit of Account
This is the portion of deposits that a bank is legally required to hold in its vault
Required Reserves
This is the central’s banks primary tool for monetary policy, involving the purchase or sale of government bonds
Open Market Operations (OMOs)
The variable on the vertical axis of the Money Market graph
Nominal Interest Rate
The variable on the vertical axis of the loanable funds market
Real Interest Rate
The narrowest definition of the money supply includes?
Cash (money in circulation), checkable bank deposits, and traveler’s checks
1/Reserve Requirement
To combat high inflation, the Fed would likely use this type of policy, characterized by higher interest rates and a smaller money supply
Contractionary Monetary Policy
This curve is typically drawn as a vertical line
Money Supply (MS) curve
Which group of people represents the supply curve of the Loanable Funds Market
This type of money has no intrinsic value and is given value by government decree
Fiat money
If the reserve requirement is 10%, a $100 cash deposit into a checkable account could potentially increase the total money supply by this much
$900
This is the interest rate that commercial banks charge each other for overnight loans of reserves.
Federal Funds Rate
An increase in the aggregate price level will cause the Money Demand curve to shift
to the Right
This phenomenon occurs when government deficit spending drives up interest rates, leading to a reduction in private investment
Crowding Out
This function of money allows people to hold onto their purchasing power for use in the future
Store of value
These are the reserves held by banks over and above the legal minimum, which are the only funds availiable for lending
Excess Reserves
When the Fed buys Treasury bills from commercial banks, what happens to the interest rates?
Why is the money demand curve downward sloping?
An increase in business optimism regarding future sales would cause this shift in the demand for loanable funds
to the Right
What is the classification of Certificates of Deposit?
M2 money (near-monies)
Loans: $5,000
Reserves: $2,000
Bonds: $1,000
Demand Deposits: $8,000
What are the excess reserves if the reserve ratio is 20%?
$400
What are the three tools that the Federal Reserve uses as monetary policy
Reserve Requirement, Discount Rate, Open Market Operations
If people begin purchasing bonds since there is a surplus of money, what happens to the interest rate?
it Decreases
This rule states that the real interest rate is equal to the nominal interest rate minus the expected inflation
The Fisher Effect