government policies flashcards

Flashcards covering key economic concepts from lecture notes.

Define 'Monetary Policy'.

Actions undertaken by a central bank to manipulate the money supply and credit conditions to stimulate or restrain economic activity.

Define 'Expansionary Monetary Policy'.

Increase money supply and lower interest rates boost aggregate demand. Shifts aggregate demand (AD)to the right.Increases GDP and price level

Define 'Contractionary Monetary Policy'.

Reduce money supply and increase interest rates to curb aggregate demand. Shifts AD to the left. Reduces inflation

What is the role of a 'Central Bank'?

Oversees monetary policy, regulates banks, and maintains financial system stability.

Define 'Interest Rates'.

The cost of borrowing money; influences spending and investment decisions.

Formula: 'Aggregate Demand (AD)'

C + I + G + (X – M)

What are 'AD/AS Models'?

Determines real GDP and the price level through the intersection of the Aggregate Demand (AD) and Short-Run Aggregate Supply (SRAS) curves.

Define 'GDP (Gross Domestic Product)'.

The total market value of all final goods and services produced in an economy during a period of time.

Define 'Nominal GDP'.

GDP evaluated at current market prices; not adjusted for inflation.

Define 'Real GDP'.

GDP adjusted for inflation to reflect the value of goods and services; uses a base year's prices.

Define 'Inflation'.

A sustained increase in the general price level in an economy.

Formula: 'Inflation Rate'

(CPI new− CPI old) / CPI old)× 100

Define 'Cash Rate'.

Interest rate which commercial banks borrow and lend to each other in overnight money market

What is another role of the Central Bank?

Monitors banks. Prevents bank runs.

What often causes inflation?

Too much money in the economy. Value of money decreases.