Monetary Policy and Loanable Funds Market

Flashcards covering key terms related to monetary policy and the loanable funds market.

Monetary Policy

The actions undertaken by a central bank to manage the money supply and interest rates for macroeconomic objectives.

Open Market Operations (OMOs)

The buying and selling of government securities by the central bank to control the money supply.

Discount Rate

The interest rate charged by central banks on loans to commercial banks.

Reserve Requirement

The minimum fraction of customer deposits that banks must hold as reserves.

Federal Funds Rate

The interest rate at which depository institutions trade federal funds with each other overnight.

Quantitative Easing (QE)

A non-traditional monetary policy where central banks purchase longer-term securities to increase the money supply.

Recognition Lag

The time it takes for policymakers to recognize an economic problem that needs to be addressed.

Implementation Lag

The time between deciding a monetary policy action and its actual implementation.

Impact Lag

The time it takes for an implemented policy to affect the economy.

Demand for Loanable Funds

Borrowers' demand for funds for investment purposes, shown by a downward sloping demand curve.

Supply of Loanable Funds

Savers' provision of funds for loans, represented by an upward sloping supply curve.

Equilibrium in the Loanable Funds Market

Occurs where the demand for loanable funds equals the supply, adjusting the real interest rate.

Administered Interest Rates

Interest rates set or regulated by a central authority, such as a central bank.

Interest on Reserves (IOR)

Interest paid by a central bank to commercial banks on their reserves held at the central bank.