Monetary Policy3

Practice flashcards covering key concepts in Monetary Policy for exam review.

Monetary Policy

The economic policy that involves the management of money supply and interest rates.

Liquidity Trap

A situation where interest rates are low and savings rates are high, rendering monetary policy ineffective.

Federal Funds Rate

The interest rate at which banks lend reserves to each other overnight, a key tool for monetary policy.

Expansionary Policy

A monetary policy intended to increase the money supply to stimulate economic activity.

Reserve Requirement

The fraction of deposits that a bank must hold as reserves and not lend out.

Interest Rate

The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Money Multiplier

The ratio of the amount of deposits created by banks in the banking system to the original amount of reserves.

Lag in Monetary Policy

The time delay between the recognition that a monetary intervention is needed and the actual implementation of that intervention.

GDP

Gross Domestic Product, the total value of goods produced and services provided in a country during one year.

Inflation

A general increase in prices and fall in the purchasing value of money.