Macro unit 4

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23 Terms

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Money
Anything that is accepted as a medium of exchange, unit of account, and store of value.
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Commodity Money
Money that has intrinsic value, such as gold or silver.
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Fiat Money
Money that has no intrinsic value but is accepted as money by government decree.
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Money Supply
The total amount of money available in the economy.
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M1
Currency (coins and paper money) plus checkable deposits (demand deposits).
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M2
M1 plus savings accounts, money market accounts, and other near-money assets.
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Money Market
A market where the supply and demand for money determine the interest rate.
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Transaction Demand
The amount of money people hold for everyday transactions.
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Precautionary Demand
The amount of money people hold for unexpected events.
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Speculative Demand
The demand for money when people expect interest rates to rise.
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Money Supply Curve
A vertical curve because the central bank controls the money supply.
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Federal Reserve (The Fed)
The central banking system of the United States that manages monetary policy.
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Monetary Policy
The Fed's management of the money supply and interest rates to achieve economic objectives.
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Open Market Operations (OMOs)
The buying and selling of government bonds to influence the money supply.
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Discount Rate
The interest rate at which commercial banks can borrow from the Fed.
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Reserve Requirements
The percentage of deposits that banks must hold in reserve and not lend out.
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Money Multiplier
The amount of money the banking system can create with each dollar of reserves.
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Liquidity Trap
A situation where interest rates are very low, and monetary policy becomes ineffective.
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Phillips Curve
The model showing the inverse relationship between inflation and unemployment.
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Expansionary Monetary Policy
Policy that lowers interest rates and increases the money supply to stimulate the economy.
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Contractionary Monetary Policy
Policy that raises interest rates and decreases the money supply to control inflation.
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Inside Lag
The time it takes for policymakers to recognize the need for a policy change and to implement it.
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Outside Lag
The time it takes for a policy change to have an effect on the economy.