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59 Cards in this Set

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  • Back
how does the money market affect the goods market? (what variable)what is the link.
what is the link from the goods market to the money market
C + D
money multiplier equation
Change in M1= initial change in M1 x (1/rr)
investment multiplier
tax multiplier
leakages and injections equation
s + T = I + G
Saving identity
flow variable
must attatch a time period like in GDP
stock variable
does not need a time period
What determines C for HHs?
1. income
2. wealth
3. interest rates
4. expectations about future
planned agg. expenditure identity
equilibrium condition for AE
Disequilibrium scenarios:
1.inventories are increasing, expenditures are greater than production, actual I is greater than I
2. inventories are depleting, sales are greater than production, actual I is less than I
Why does the multiplier eventually have an end?
because some of the money leaks from the system as savings
investment multiplier
investment multiplier formula
change in Y=change in I (1/MPS)
Y identity
what does gov't spending include?
federal, state and local
(7% and 12% of GDP)
who controls the spending?
congress and the president
when congress can't decide on a budget
continuing resolution, same budget as previous year
budget effective from when to when?
Oct 1-Oct 31
net taxes equation
=taxes-transfer payments which are SS, welfare, etc.
budget deficit equation
disposable income indentity
tax multiplier equation
change in Y= NEG change in T (MPC/MPS)
is the tax or gov't multiplier bigger?
Government because it has a 1 on top instead of MPC
why is the tax multiplier equation negative?
because GDP and taxes are inversely related
Balanced Budget multiplier equation
change in Y=change in G (1)

evern though the balance budget isn't changed, Y is still affected
who gives budget numbers?
how should we compare deficits?
as a % of GDP,
2005=4% of GDPwhich is historically average
treasury bond
maturity date greater than one year
treasury bill
maturity date less than one year
how is the gov. budget affected by economy? revenues expendtures
3.automatic stabilizers
4.fiscal drag
5.full-employment budget
purpose of full employment budget
helps establish a benchmark for evaluating fiscal policy
structural deficit
deficit that remains at full employment
deficit that occurs because of a downturn in business cycle
uses of money
1.medium of exchange of value
3.unit of accout(consistent way of quoting prices)
liquid money to less liquid
currency and coin
time deposit (CD)
retirement account
commodity money
has intrinsic value like gold coins
fiat money
has no intrinsic value like USA's money
what kind of money is M1?
transactions money, more liquid
=currency outside of banks and demand deposits and traveler's checks and other checkable deposits
demand deposits
checkaing accounts and savings accounts
what kind of money is M2?
broad money
=M1+savings accounts with time restrictions and money market accounts and other monies
money market accounts
checking accounts with time restrictions
jobs of the Fed
1.regulate and monitor private banking system
2.control monetary policy to private banks
current chair of board of governors of federal reserve system
Ben Bernanke (prev. Alan Greenspan)
18 year term limit
what kind of system do banks operate on?
fractional reserve system
required reserve ratio
currently 10%
how many regional Fed banks?
tools of monetary policy
1.reserve requirement rate market operations
moral suasion
previous pressure Fed exerted on member banks to discourage heavy borrowing from Fed
what does supply curve for money look like when Ms isn't influenced by interest rate?
vertical line
federal open market committee is in charge of monetary policy, headed by Bernanke, regular meetings every 6 weeks to decide money supply changes
discount rate
rate to borrow from the Fed
fed funds rate
rate to borrow from other bank
is fed funds or discount rate higher?
discount (6.25 vs 5.25%)
why is money demand curve downward sloping?
because at higher interest rates, ppl will want to hold more bonds than at lower rates
2 things that shift Md curve
1. change in income/output Y
2. change in price level P