Studied by 5 peopleLiquidity trap
when demand for money is flat → change in money supply does not affect interest rates.
Arbitrage
buying low, selling high → profit.
Depreciation
currency becomes weaker /loses value compared to other currencies.
Appreciation
currency gains value compared to other currencies.
Trade deficit
when imports exceed exports.
Fixed exchange rate
changes in demand only affect quantity of dollars purchased.
Balance of payments
statement of all international flows of money during a period of time
Trade surplus
when exports exceed imports
Flexible exchange rate
central bank can fix quantity of assets denominated in home currency
Velocity of money (V)
number of times per period that average dollar is spent on final goods and services
Quantity of money
Q is stable in addition to V
Neutral rate of real interest
fluctuations in nominal interest rate reflect anticipated inflation
Fisher effect
market participants predicted Fed will reduce money supply growth to counter inflation → causes inflation and nominal interest rates to fall
Note
Flashcard