Econ

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transaction demand for money

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the demand for money based on the desire to facilitate transactions, reason for holding money

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liquidity demand for money

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the demand for money that represents the needs and desires individuals and firms have to make transactions on short notice without incurring excessive costs

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speculative demand for money

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the demand for money that arises because holding money over short periods is less risky than holding stocks or bonds

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money market

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the market for money in which the amount supplied and the amount demanded meet to determine the nominal interest rate

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illiquid

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not easily transferable money

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open market operations

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the purchase or sale of US governement securites by the fed

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open market purchases

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the fed's purchase of government bonds from the private sector

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open market sales

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the feds sale of government bonds to the private sector

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decrease

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selling bonds ______________ the money supply

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increase

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purchasing bonds will ___________ the money supply

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discount rate

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the interest rate at which banks can borrow from the Fed

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federal funds market

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the market in which banks borrow and lend reserves to and from one another

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federal funds rae

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the interest rate on reserves that banks lend each other

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exchange rate

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the rate at which currencies trade fro one another in the market

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depreciation of currenc

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a decrease in teh value of a currency

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appreciation of a currency

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an increase in the value of currency

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short run in marco

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the period of time in which prices do not change or do not change very much

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long run in macro

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the period of time in which prices have fully adjusted to any economic changes

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wage price spiral

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the process by which changes in wages and prices causing further changes in wages and prices

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aggregate demand curve

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a curve that shows the relationship between teh level of prices and the quantity of real GDP demanded

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short run aggregate supply curve

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a relatively flat aggregate supply curve that represents the idea that prices do not change very much in the short run and that firms adjust production to meet demand

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long run aggregate supply curve

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a vertical aggregate supply curve that reflects the idea that in the long run, output is determined solely by the factors of production

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Milton Friedman

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believed that the economy adjust rapidly to fully employment and generally oppose using monetary or fiscal policy to try to stablize the economy

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John Maynard Keynes

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believed that the economy adjusts slowly and more sympathetic to using monetary or fiscal policy

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liquidity trap

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a situation in which nominal interest rates are so low they can no longer fall

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political business cycle

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the effects on the economy of using monetary or fiscal polciy to stimulate the economy before an election to improve reelection prospects

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long run neutrality of money

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an increase in the supply of money has no effect of real interst rates, investment or output in the long run

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crowding out

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the reduction in investment or other component of GDP in the long run caused by an increase in government spending

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say's law

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the doctrine that "supply creates its own demand"

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Friedman

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believed that teh wage price adjustment mechanism that restored the economy to full employment was reasonably effective

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wages and prices rise

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when output exceed full employment...

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wages and prices fall relative to past trends

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when output is less than full employment

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government expenditures

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spedning on goods and services plus transfer payments

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surplus

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the amount by which government revenuse exeed government expenditures in a given year

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deficit

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the amount by which government expenditures exceed government revenues in a given year

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government deficit

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the total of all past governemtn deficits

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monetizing the deficit

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purchases by a central bank of newly issued government bonds

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ricardian equivalence

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the proposition that it doesnt matter whether the governemtn expenditure is finance by taxes or debt

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consumption taxes

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taxes based on the consumption not the income of individuals

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capital gains

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profits investors earn when they sell stocks bonds real estate or other assests