ap macro unit 3 100%

monetary base: Currency held by the public and commercial bank reserves held with the central bank

m1: currency, demand deposits,
traveler’s checks, and other checkable deposits.  

m2: everything in M1 plus savings deposits,
small time deposits, money market mutual funds, and a few minor categories. 

private saving: Y-T-C

public saving: T-G

national saving and investment: (Y-T-C) - (T-G)

budget surplus = public saving

budget deficit = -(public saving)

OMOs: The purchase and sale of U.S. government bonds by the Fed.

discount rate: The interest rate on loans the Fed makes to banks

reserve requirements: Regulations on the minimum amount of reserves banks must hold against deposits.  

nominal variables: are measured in monetary units. 

real variables: are measured in physical units.

money neutrality:   the proposition that changes in the money supply do not affect real variables

quantity equation: M*V=P*Y (arrange for velocity formula)

shoeleather costs: the resources wasted when inflation encourages people to reduce their money holdings  

menu costs: the costs of changing prices

Fischer effect: money is neutral, so a change in the money growth rate affects the inflation rate but not the real interest rate.

How do loans increase in banking system: Lending out excess reserves

Money multiplier overstated: Because it doesnt take excess reserves into account

As nominal interest rate increases: quantity of money people want to hold decreases

As nominal interest rate increases: prices of bonds decrease

As loanable funds increase/shift to right: Interese rate decreases