Econ Final

Open Market Operations

Buying and selling T-securities to influence the money supply.

Reserve Requirements

The ratio of deposits banks must hold as reserves; higher ratios decrease the money supply.

Discount Rate Policy

The interest rate the Fed charges banks for loans; adjusting it affects borrowing.

Interest on Reserves

The rate on reserves held by banks, influencing their willingness to lend.

Federal Funds Rate

The interest rate for overnight loans between banks, determined by the Federal Funds market.

Expansionary Monetary Policy

A policy to lower interest rates to stimulate the economy and reduce unemployment.

Contractionary Monetary Policy

A policy to raise interest rates to control inflation and reduce spending.

Fiscal Policy

Changes in government revenue and spending to influence the economy.

Automatic Stabilizers

Economic policies and programs that automatically help stabilize the economy.

Transfer Payments

Payments made by the government to individuals, such as Social Security and Medicaid.

Multiplier Effect

The proportional increase in final income that results from an initial increase in spending.

Ceteris Paribus

An assumption that all other factors remain constant when analyzing economic changes.

Recessionary Gap

The difference between potential GDP and actual GDP during a period of underperformance.

Budget Deficit

When government expenditures exceed revenue in a given time frame.

Currency Appreciation

An increase in the value of one currency in relation to another.

Currency Depreciation

A decrease in the value of one currency against another.

Nominal Exchange Rate

The value of one currency expressed in terms of another currency.

Pegged Exchange Rate

A fixed exchange rate system where a currency's value is tied to another currency.

Taylor Rule

An equation that suggests how central banks should change interest rates in response to changes in inflation and economic output.