Consists of deliberate changes in the money supply to influence interest rates and thus the total level of spending in the economy
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Interest
The price paid for the use of money
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Transactions demand
The demand for money as a medium of exchange
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higher interest rate
The ________ will discourage investment, lowering aggregate demand and restraining demand- pull inflation.
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Asset demand
Holding money as an asset
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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
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Open market operations
Buying of government bonds from, or the selling of government bonds to, commercial banks and the general public
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Reserve ratio
Can be manipulated in order to influence the ability of commercial banks to lend
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Discount rate
Federal Reserve Banks charge interest on loans they grant to commercial banks
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Term auction facility
The Fed holds two auctions each month at which banks bid for the right to borrow reserves for 28-day periods
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Federal funds rate
The rate of interest that banks charge one another on overnight loans made from temporary excess reserves
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Expansionary monetary policy
Lower the interest rate to bolster borrowing and spending, which will increase aggregate demand and expand real output
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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
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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
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Taylor rule
Assumes that the Fed has a 2 percent “target rate of inflation” that it is willing to tolerate
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Monetary policy
Consists of deliberate changes in the money supply to influence interest rates and thus the total level of spending in the economy
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Interest
The price paid for the use of money
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Transactions demand
The demand for money as a medium of exchange
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Asset demand
Holding money as an asset
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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
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Securities
Government bonds that have been purchased by the Federal Reserve Banks
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Reserves of commercial banks
he Fed requires that the commercial banks hold reserves against their checkable deposits
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Open market operations
Buying of government bonds from, or the selling of government bonds to, commercial banks and the general public
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Reserve ratio
Can be manipulated in order to influence the ability of commercial banks to lend
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Discount rate
Federal Reserve Banks charge interest on loans they grant to commercial banks
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26
Term auction facility
The Fed holds two auctions each month at which banks bid for the right to borrow reserves for 28-day periods
New cards
27
Federal funds rate
The rate of interest that banks charge one another on overnight loans made from temporary excess reserves
New cards
28
Expansionary monetary policy
Lower the interest rate to bolster borrowing and spending, which will increase aggregate demand and expand real output
New cards
29
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
New cards
30
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
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Taylor rule
Assumes that the Fed has a 2 percent "target rate of inflation" that it is willing to tolerate
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