Lecture Notes on Money Supply and Demand

These flashcards cover essential vocabulary terms and definitions related to money supply and demand, exploring key concepts discussed in the lecture.

M1

The narrow definition of money, which includes currency in circulation and demand deposits.

M2

A broader definition of money including M1 plus time deposits and small denomination savings.

M3

The broadest definition of money that includes M2 plus deposits of savings banks and other financial institutions.

Exogenous Determination

Money supply determined by factors outside the economic agents' activities, primarily controlled by the central bank.

Endogenous Determination

Money supply that is influenced by changes in economic activity and agents' behavior.

Legal Reserve Ratio

The percentage of deposits that banks are required to hold as reserves.

Credit Creation Multiplier

A measure of how much deposit money can be created in the banking system from an initial deposit.

Destruction of Deposits

The reduction in bank deposits when loans and securities are repaid or sold.

Transactionary Motive

The reason for holding money to bridge the gap between receipts and payments.

Precautionary Motive

The desire to hold money to cover unexpected expenses.

Speculative Motive

Holding money for potential investment opportunities.

Inside Money

Money created within the private sector based on private debts.

Outside Money

Money that comes from the central bank or government, not based on private sector debt.

High Powered Money

The total of the reserves banks hold and the currency in circulation, influencing the overall money supply.

Money Multiplier

The factor by which high powered money is multiplied to determine the total money supply in the economy.