Financial Markets and Institutions Lecture Notes

These flashcards cover key vocabulary terms related to monetary policy and its effects as discussed in the Financial Markets and Institutions lecture notes.

Monetary Policy

Actions by the Federal Reserve to manage the money supply and interest rates to influence the economy.

GDP

Gross Domestic Product; measures the total value of goods and services produced during a specific period.

Unemployment Rate

The percentage of the labor force that is jobless and actively seeking employment.

Leading Economic Indicators

Economic indicators that predict future economic activity.

Coincident Economic Indicators

Indicators that reach their peaks and troughs at the same time as the business cycle.

Lagging Economic Indicators

Indicators that rise or fall a few months after business-cycle expansions and contractions.

Demand-pull Inflation

Inflation that occurs when excessive spending pulls up prices.

Stimulatory Monetary Policy

A policy that increases the money supply to lower interest rates and stimulate economic growth.

Operation Twist

A strategy where the Fed sells short-term Treasury securities to buy long-term ones to influence long-term interest rates.

Inverse Relationship

A relationship where one variable increases as the other decreases.

Recognition Lag

The time lag between when an economic problem arises and when it is recognized.

Implementation Lag

The delay between recognizing an economic issue and the implementation of a policy to address it.

Impact Lag

The time taken for a monetary policy change to fully impact the economy.

Tradeoff in Monetary Policy

The balancing act between low unemployment and low inflation.

Inflation Targeting

A monetary policy strategy that focuses on maintaining a specific inflation rate.

Global Crowding Out

A situation where a government’s budget deficit affects interest rates of various countries.

Producer Price Index (PPI)

An index that measures the average change over time in the selling prices received by domestic producers for their output.

Consumer Price Index (CPI)

An index that measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.