ap macro unit 3 100%

Monetary Base

Currency held by the public and commercial bank reserves held with the central bank.

M1

Includes currency, demand deposits, traveler’s checks, and other checkable deposits.

M2

Includes everything in M1 plus savings deposits, small time deposits, money market mutual funds, and a few minor categories.

Private Saving

Calculated as Y - T - C.

Public Saving

Calculated as T - G.

National Saving and Investment

Calculated as (Y - T - C) - (T - G).

Budget Surplus

The situation where public saving is positive.

Budget Deficit

The situation where public saving is negative.

OMOs (Open Market Operations)

The purchase and sale of U.S. government bonds by the Fed.

Discount Rate

The interest rate on loans the Fed makes to banks.

Reserve Requirements

Regulations on the minimum amount of reserves banks must hold against deposits.

Nominal Variables

Measured in monetary units.

Real Variables

Measured in physical units.

Money Neutrality

The proposition that changes in the money supply do not affect real variables.

Quantity Equation

M * V = P * Y, which can be arranged for the velocity formula.

Shoeleather Costs

The resources wasted when inflation encourages people to reduce their money holdings.

Menu Costs

The costs associated with changing prices.

Fischer Effect

The principle that money is neutral; a change in the money growth rate affects the inflation rate but not the real interest rate.

How do loans increase in the banking system?

By lending out excess reserves.

Why is the money multiplier overstated?

Because it doesn't take excess reserves into account.

What happens as the nominal interest rate increases?

The quantity of money people want to hold decreases.

Effect on bond prices as nominal interest rates increase

Prices of bonds decrease.

Result of an increase in loanable funds

Shift to the right causes the interest rate to decrease.