Demand for Money
This type of demand is holding money to make everyday payments.
What is transactions demand?
The Fed changes the money supply mainly to influence this.
What are interest rates?
Bond prices and interest rates have this type of relationship.
What is an inverse relationship?
This type of policy increases the money supply
This type of policy increases the money supply
This happens when money supply grows too quickly over time.
What is inflation?
This type of demand is holding money for emergencies.
What is precautionary demand?
This Fed tool involves buying and selling government bonds.
What are open market operations?
If bond prices fall, interest rates will do this
What is increase?
This type of policy decreases the money supply.
What is contractionary monetary policy?
This is how many times money is spent per year.
velocity of money?
This type of demand is holding money as a store of value instead of other assets.
What is asset demand?
This is the interest rate banks pay to borrow reserves from each other overnight.
What is the federal funds rate?
When the Fed buys bonds, interest rates generally do this.
What is decrease?
Expansionary policy shifts this curve to the right.
What is aggregate demand?
In the equation of exchange, this represents real GDP.
What is Y?
This factor directly increases transactions demand for money.
What is an increase in nominal GDP?
This is the interest rate the Fed charges banks directly.
What is the discount rate?
Buying a $1,000 bond that pays $50 yearly gives this yield.
What is 5%?
Contractionary policy is used to fix this type of gap.
What is an inflationary gap?
This formula shows the relationship between money, prices, and output.
What is the equation of exchange?
This is the opportunity cost of holding money.
What is the interest rate?
This group sets monetary policy and targets interest rates.
What is the Federal Open Market Committee (FOMC)?
Buying that same bond for $500 gives this yield.
What is 10%?
Expansionary policy helps close this type of gap.
What is a recessionary gap?
This theory says money supply changes lead to proportional price changes.
What is the quantity theory of money?