money basics
what is money?
Anything generally accepted as payment
What is the reserve requirement?
the percentage of deposits banks must hold
what is the federal reserve?
the US central bank
what are open market operations?
buying and selling government bonds
what are interest rates?
when money supply rises, this usually falls
what are medium of exchange, unit of account, and store of value?
the 3 functions of money
what are required reserves?
what is the fomc? (fed open market committee)
the group that conducts open market operations
what is expansionary monetary policy?
bond purchases meant too stimulate the economy
what is investment?
lower interest rates tend to increase this component of GDP
what is divisibility?
This characteristic of money ensures it can be easily transferred and divided
what is 1/ reserve requirement?
The formula uses to calculate maximum money creation
The rate targeted by the Fed to influence all other short term interest rates
what is selling bonds and raising interest rates?
the policy combination used to combat demand pull inflation
what is a higher price level?
according to the equation of exchange, if velocity is constant, an increase in money supply leads to this
what is m2?
The money supply measure that includes M1 plus savings deposits and money market funds
what is when banks hold excess reserves?
the condition under which banks cannot create as much money as the multiplier predicts
what is the raising discount rate?
The Fed action that signals concern about inflation by slowing bank lending
what is because they are too powerful and destabilizing?
why changes in the reserve requirement are rarley used
what is increased real output and unemployed?
a rightward shift of AD caused by monetary expansion in the short run
if the public suddenly loses confidence in fiat money, the function of money is most directly undermined
what are the 2 behaviors that prevent banks from creating the maximum amount of money?
banks holding excess reserves and people holding cash
what is the trade off between inflation and unemployment?
the conflict the Fed faces when reducing inflation increases unemployment
what is the effect of expansionary open market operations?
When the Fed buys gov bonds, banks gain reserves, interest rates fall, borrowing increases, and AD rises
what is inflation with no long run change in real output?
the long run result of an excessive increase in money supply