Studied by 2 people
security
a claim on the issuer’s future income or assets
bond
a debt security that promises to make payments periodically for a specified period of time
interest rate
the “cost of borrowing” or the price paid for the rental of funds
aggregate price level
the average price of goods and services in an economy
Financial intermediaries
institutions that borrow funds from people who have saved and in turn make loans to people who need funds
Financial innovation
the development of new financial products and services
Financial crises
major disruptions in financial markets that are characterized by sharp declines in asset prices and the failures of many financial and nonfinancial firms
Monetary policy
the management of money and interest rates
Fiscal policy
deals with government spending and taxation
Adverse selection
try to avoid selecting the risky borrower by gathering information about them
Moral Hazard
ensure borrower will not engage in activities that will prevent one to pay the loan
commodity money
goods used as money that also has value independent as their use as money
Medium of exchange
Money is acceptable to a wide variety of parties as a form of payment for goods and services
Unit of account
Money allows a way of measuring value in a standard matter
Store of value
Money allows people to defer consumption until a later date by storing value. Other assets can do this too, but money does it particularly well because it is liquid
Standard of deferred payment
Money facilitates exchanges across time when we anticipate that its value in the future will be predictable
Federal Funds Rate
the rate for a bank to borrow overnight from other banks with surplus funds
Discount Rate
the rate for borrowing from the U.S. Central Bank, normally as a last resort
Instrument independence
the Fed can use the tools it wants to use
Goal independence
the Fed can use the target it wants to use
Nonborrowed reserves
funds a financial institution holds in cash; the funds are its own, and not money on loan from a central bank
Excess reserves
refer to any reserves a bank has that exceed the Fed’s reserves requirements, whether they are borrowed or not
Dynamic open market operations
intended to directly change the level of reserves and the monetary base
Defensive open market operations
intended to maintain levels and offset other factors that affect reserve and the monetary base
Repurchase agreements
the seller agrees to purchase back the security from the Fed in a short time
Matched sale-purchase agreements
the buyer agrees to sell back the security to the Fed after a short time
Primary credit
the Standing Lending Facility which allows banks to borrow all they want from the Fed with a very short maturity (typically overnight)
Secondary credit
loans available for banks that are in financial trouble with severe liquidity problems
Seasonal credit
for banks with high seasonality (vacation destinations, agricultural areas)
Planned Expenditure
the total amount that households, businesses, the government, and foreign people spend on domestically produced goods and services
Consumption
the total demand for consumer goods and services
mpc
What percent of every dollar I get do I consume?
Autonomous Consumption
the amount of consumption expenditure that is exogenous (not affected by other variables in the model)
Investment
The purchase of new physical assets that add to aggregate demand
autonomous investment
fluctuations in investing from waves of optimism and pessimism
financial frictions
added costs to borrowing that come from asymmetric information about the creditworthiness of someone
Government purchases
spending by all governments on goods and services (not counting transfer payments)
Net Exports
the net foreign spending on domestic goods and services
Taylor Principle
to stabilize the economy, the central bank should increase the interest rate to combat inflation
Autonomous Tightening of Monetary Policy
increasing /r/ to increase the interest rate for any given inflation rate
Autonomous Easing of Monetary Policy
decreasing /r/ to decrease the interest rate for any given inflation rate
The Investment-Savings (IS) Curve
illustrates the relationship between the real interest rate and aggregate output when investment = savings in equilibrium
The Monetary Policy (MP) Curve
illustrates the relationship between interest rate set by the Fed and the inflation rate
Aggregate Supply Curve
shows the relationship between the quantity of goods supplied and the inflation rate
Long Run Aggregate Supply (LRAS)
determined by the amount of capital, technology, and labor from full employment in an economy
Short Run Aggregate Supply (SRAS)
determined by expectations of inflation, the output gap (expansion/recession), and supply shocks
Natural rate of unemployment
the level of unemployment when cyclical unemployment is zero
Output gap
percent difference between current aggregate output and potential output
short-run macroeconomic equilibrium
the point where aggregate output demanded equals aggregate output supplied
Nonactivists
believe government action is unnecessary to eliminate unemployment
Activists
see the need for the government to pursue active policy to eliminate high unemployment when it develops
Data lag
the time it takes for policy makers to obtain data indicating what is happening in the economy
Recognition lag
the time it takes for policy makers to be sure of what the data are signaling about the future course of the economy
Legislative lag
the time it takes to pass legislation to implement a particular policy
Implementation lag
the time it takes for policy makers to change policy instruments once they have decided on the new policy
Effectiveness lag
the time it takes for the policy to actually have an impact on the economy
Cost push inflation
results either from a temporary supply shock increasing prices or a push by workers for wage hikes beyond what productivity gains can justify
Demand pull inflation
results from policy makers pursuing policies that increase aggregate demand
Note 
Flashcard (29)