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1

Federal Funds rate

the interest rate at which commercial banks make overnight loans to one another

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2

Policy rate

the interest rate at which the central bank will lend money to commercial banks

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3

real intrest rate equation

nominal interest rate - inflation rate

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4

Expasionary fiscal policy

Decreasing taxes and increasing government spending

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5

Contractionary Fiscal Policy

Increasing taxes and decreasing government spending

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6

Expansionary Monetary Policy in a limited reserves system

The central bank buys bonds, decrease the reserve requirement, decrease the discount rate

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7

Contractionary Monetary policy in a limited reserves system

The central bank sells bonds, increase the reserve requirement, increase the discount rate

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8

expansionary monetary policy in an ample reserves system

decrease interest on reserves, decrease the discount rate, buy bonds

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9

Contractionary monetary policy in an ample reserves system

increase interest on reserves, increase the discount rate, sell bonds

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10

Discount rate

The rate that the central bank charges banks when they take loans from the central bank

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11

Interest on reserves

The rate that a central bank will pay commercial banks foe holding their reserves in the central bank

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12

Money supply model

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13

The y axis on the MS model

Nominal Interest rate

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14

X-axis on the MS Model

quantity of Money

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15

Money supply curve shifters

only the federal reserve can change the supply

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16

Money demand curve shifters

a change in price level, RGDP, and transaction costs

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17

Reserve market model

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18

The y axis of the Reserve market Model

Policy rate

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19

X axis on the Reserve Market Model

Quantity of reserves

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20

Vertical line on the reserve market model

Supply of reserves

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21

Top horizontal line on the reserve market model

Discount Rate

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22

Bottom horizontal line on the Reserve Market Model

Demand For reserves, the dotted line is Interest on reserves

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23

Loanable funds market Model

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24

Y axis on the Loanable funds market Model

Real Interest Rate

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25

X Axis on the Loanable Funds market Model

Quantity of loans

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26

Downward sloping curve on Loanable funds rate model

demand for loans

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27

upwards sloping curve on loanable funds rate mode

Supply of loanable funds

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28

Loan demand shifters

change in private borrowing, change in public borrowing

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29

Loan Supply Shifters

change in private savings, change in public savings

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30

M1

Cash, Checking accounts, Travelers Checks

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31

M2

Savings assets, Checking deposits, Money Market assets, +M1

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32

Uses of money

Medium of exchange, unit of account, store of value

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33

Recessionary gap on the Aggregate demand model

expansionary fiscal policy and monetary policy. Needs to increase the money supply and lower the nominal interest rate

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34

Expansionary gap on the Aggregate Demand Model

contractionary fiscal policy and monetary policy. Need to decrease the money supply and increase the monetary policy

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35

increase in money supply

decrease in nominal interest rate

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36

decrease in money supply

increase in nominal interest rate

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37

Short run Phillips curve shifter

a shift in ad results in movement along the curve, a shift in AS moves the SRPC in the opposite direction the shift occurred

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38

Phillips curve model

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39

y axis for the phillps curve model

Inflation rate

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40

x axis for the phillips curve model

unemployment rate

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41

downward sloping line on the Phillips curve model

Short run phillips curve

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42

upward sloping line on the philips curve model

long run phillips curve

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43

stagflation

caused by a decrease in aggregate supply which results in an increase in unemployment and inflation along with slow economic growth

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44

velocity of money (v)

the amount of times a dollar is respent in a year

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45

Quantity of money theory

Money Supply (M) x Velocity (V) = Price level (P) x Quantity of Output (Y)

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46

Nominal Gdp formula

Price level (P) x Quantity of Output (Y)

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47

Crowding out

The government deficit spends increasing demand for loans because there is less taxes being collected or an increase in spending. Interest rates increase due to this which decreases private sector borrowing in the short run “Crowding out” the private borrower

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48

GDP per capita

GDP / population, is used to measure a nations standard of living

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49

Productivity

output / input , ie. $80 / 4 hours

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50

Long run Phillips curve shifter

the curve shifts the opposite direction of an LRAS shift

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