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monetary policy
central bank changing money supply to influence interest and achieve price level stability, full employment, and economic growth
transactions demand for money
amount of money people want to have to us as medium of exchange
asset demand for money
amount of money people want to have as store of value
total demand for money
sum of transactions and asset demand for money
open market operations
buying and selling securities under the fed to influence interest rates and monetary supply
discount rate
interest rate fed charges on loans to other banks
prime interest rate
benchmark interest rate that banks use as a reference for loans
forward commitment
policy by central bank to continue to pursue monetary policy until a certain date or threshold
cyclical asymmetry
idea that monetary policy may be more successful in slowing expansions and controlling inflation then pulling economy out of large recession
liquidity trap
in recession when central bank makes an injection that has little to no effect; when interest rates are low, but citizens are hoarding cash
federal funds rate
interest rate banks charge each other on overnight loans
shifters of money demanded
technology, income, price levels
shifters of money supplied
reserve ratio, discount rate, open market operations, and interest rate on reserves held in the fed
buying v selling bonds
buy: expansionary, sell: contractionary
increase v decrease RRR
increased ratio: contractionary, decreased ratio: expansionary
increase v decrease discount rate
increased rate: contractionary, decreased rate: expansionary
increase v decrease interest on bank reserves
increased percentage: contractionary, decreased percentage: expansionary
easy money
lower interest rates, buy bonds lower RRR, lower discount rate
tight money
increase interest rates, sell bonds, increase RRR, increase discount rate
monetary policy over fiscal policy
speed and flexibility, isolation from political pressure
