Lecture on Money Market and Monetary Policy

This flashcard set covers key vocabulary related to the money market and monetary policy from the lecture.

Monetary Policy

The process by which the Federal Reserve controls the money supply and interest rates to influence the economy.

Money Market

A market where the Federal Reserve and users of money interact, determining the nominal interest rate.

Money Demand (MD)

The desire to hold financial assets in the form of money rather than other assets.

Nominal GDP

The market value of all final goods and services produced in an economy, not adjusted for inflation.

Money Supply (MS)

The total amount of money available in an economy at a specific time, determined by the Federal Reserve.

Transaction Demand

The demand for money as a medium of exchange, independent of the interest rate.

Asset Demand

The demand for money as a store of value, dependent on the interest rate.

Limited Reserves Method

A method used by the Federal Reserve until 2008 to control the money supply by adjusting reserve requirements.

Ample Reserves Method

The current method of monetary policy employed by the Federal Reserve since 2008.

Reserve Requirement

The percentage of deposits that banks must keep as reserves and not loan out.

Discount Rate

The interest rate the Federal Reserve charges banks for loans, affecting the money supply.

Federal Funds Rate (FFR)

The interest rate at which banks lend reserves to each other overnight.

Open-Market Operations

The buying and selling of government bonds by the Federal Reserve to influence the money supply.

Expansionary Monetary Policy

A policy that increases the money supply to stimulate economic activity.

Contractionary Monetary Policy

A policy that decreases the money supply to control inflation.

Fractional Reserve Banking

A banking system wherein banks hold only a fraction of deposits as reserves and loan out the rest.