Monetary Economics Flashcards

Fill-in-the-blank flashcards for reviewing key concepts in Monetary Economics.

Monetary Economics is the study of _.

money, banking, and their influence on the economy

Money is anything widely accepted as a __.

medium of exchange, store of value, unit of account

Monetary policy involves actions by a central bank to control the __.

money supply and interest rates

Inflation is the __ in the general price level of goods and services over time.

increase

__ refers to how easily an asset can be converted into cash without losing its value.

liquidity

The money supply is the total amount of money, including __, available in an economy at a specific time.

coins, currency, and bank deposits

M1 money supply includes __.

cash and demand deposits

M2 money supply includes M1 and less liquid forms of money, like __.

savings accounts and time deposits

__ is the money that banks set aside and don't lend out.

reserves

__ are reserves that banks must legally keep with the Central Bank.

required reserves

The monetary base includes __.

currency in circulation and reserves held by banks at the Central Bank

The __ determines how much the money supply expands with a given increase in the monetary base.

money multiplier

Reserve ratio is the __ banks are required to hold as reserves.

percentage of deposits

Currency-to-deposit ratio is the amount of __.

currency people hold compared to their bank deposits

The __ illustrates the flow of money in the economy.

Circular Flow Chart

The derivation of the simple model of deposit creation assumes that __.

AC = 0

Modern banking operates on a __ system, where banks are required to keep only a fraction of their deposits in reserve.

fractional reserve

The money multiplier has a __ relationship with the reserve ratio and the currency deposit ratio.

negative

__ is the amount of money that individuals and businesses want to hold instead of lending.

Money Demand

__ in the money market is a balance where money supply equals money demand, determining interest rates.

Equilibrium

__ puts money into banks and increases lending.

Buying bonds

The __ is the interest rate at which banks can borrow money directly from the central bank

Discount Rate

The Behaviour Approach to Money Supply Process explains how __ interact to determine the total money supply.

Public preferences, banks' decisions, and central bank policies

__ can cause inflation.

Printing money

__ is money borrowed from other countries or global organizations.

External Debt

__ is the total value of everything made inside a country, no matter who owns it.

GDP

__ is a core tenet of monetarist economics.

Money demand is stable over time

__ is the percentage of deposits banks are required to keep as reserves with the Central Bank.

Required Reserve Ratio

Open market operations involve the central bank __ in the open market.

buying or selling government securities

__ is the interest rate the central bank charges when commercial banks borrow money from it for short-term needs.

Discount Window Rate

The goals of monetary policy are to control __.

inflation and support growth

The __ can be used to estimate the appropriate federal funds rate given the state of the economy.

Taylor Rule

The __ links nominal interest rates, real interest rates, and expected inflation.

Fisher Identity

The __ illustrates the inverse relationship between inflation and unemployment.

Phillips curve

__ is defined as the percentage change in the price level

Inflation

__, __, and __ are all used to explain the term structure of interest rates.

Expectation Theory, Segmented Market Theory, and Liquidity Premium Theory