Studied by 9 people
Monetary policy
Consists of deliberate changes in the money supply to influence interest rates and thus the total level of spending in the economy
Interest
The price paid for the use of money
Transactions demand
The demand for money as a medium of exchange
higher interest rate
The ________ will discourage investment, lowering aggregate demand and restraining demand- pull inflation.
Asset demand
Holding money as an asset
Total demand for money
The total amount of money the public wants to hold, both for transactions and as an asset, at each possible interest rate
Open market operations
Buying of government bonds from, or the selling of government bonds to, commercial banks and the general public
Reserve ratio
Can be manipulated in order to influence the ability of commercial banks to lend
Discount rate
Federal Reserve Banks charge interest on loans they grant to commercial banks
Term auction facility
The Fed holds two auctions each month at which banks bid for the right to borrow reserves for 28-day periods
Federal funds rate
The rate of interest that banks charge one another on overnight loans made from temporary excess reserves
Expansionary monetary policy
Lower the interest rate to bolster borrowing and spending, which will increase aggregate demand and expand real output
Prime interest rate
The benchmark interest rate used by banks as a reference point for a wide range of interest rates charged on loans to businesses and individuals
Restrictive monetary policy
Increase the interest rate in order to reduce borrowing and spending, which will curtail the expansion of aggregate demand and hold down price-level increases
Taylor rule
Assumes that the Fed has a 2 percent “target rate of inflation” that it is willing to tolerate
Monetary policy
Consists of deliberate changes in the money supply to influence interest rates and thus the total level of spending in the economy
Interest
The price paid for the use of money
Transactions demand
The demand for money as a medium of exchange
Asset demand
Holding money as an asset
Total demand for money
The total amount of money the public wants to hold, both for transactions and as an asset, at each possible interest rate
Securities
Government bonds that have been purchased by the Federal Reserve Banks
Reserves of commercial banks
he Fed requires that the commercial banks hold reserves against their checkable deposits
Open market operations
Buying of government bonds from, or the selling of government bonds to, commercial banks and the general public
Reserve ratio
Can be manipulated in order to influence the ability of commercial banks to lend
Discount rate
Federal Reserve Banks charge interest on loans they grant to commercial banks
Term auction facility
The Fed holds two auctions each month at which banks bid for the right to borrow reserves for 28-day periods
Federal funds rate
The rate of interest that banks charge one another on overnight loans made from temporary excess reserves
Expansionary monetary policy
Lower the interest rate to bolster borrowing and spending, which will increase aggregate demand and expand real output
Prime interest rate
The benchmark interest rate used by banks as a reference point for a wide range of interest rates charged on loans to businesses and individuals
Restrictive monetary policy
Increase the interest rate in order to reduce borrowing and spending, which will curtail the expansion of aggregate demand and hold down price-level increases
Taylor rule
Assumes that the Fed has a 2 percent "target rate of inflation" that it is willing to tolerate
Monetary policy
Evaluation + issues
