Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
64 Cards in this Set
- Front
- Back
|
Discount rate
|
refers to the interest rate that the Federal Reserve District Bank charges a
member bank on loans. |
|
|
Token money
|
refers to coins that have no intrinsic value.
|
|
|
M1
|
currency in circulation plus checkable deposits. It’s called money. Over 50% of M1 is in
demand deposits. |
|
|
M2
|
everything that’s in M1 plus time deposits or savings accounts. It’s referred to as Near
Monies. |
|
|
Federal Reserve Board of Governors
|
has 7 members each serving a staggered 14 year
term. |
|
|
Excess reserves
|
are the basis for commercial bank lending. An individual bank can only lend
to the fullest extent of its excess reserves. They are the amount by which the bank’s actual reserves exceed its required reserves. |
|
|
Required reservesare
|
are fractional because they are less than 100%. They are a specified
percentage of a banks pain-in demand deposits that must be sent forward to the Federal Reserve. |
|
|
Reserves
|
In the Federal Reserve Banking System, reserves lost by a single bank are not lost
to the system as a whole. |
|
|
Federal Reserve buying and selling bonds (gov. securities
|
during a recession the Federal
Reserve buys government securities or bonds. The money supply then increases. During inflation the Federal Reserve sells government bonds and the money supply decreases. This also applies to commercial banks buying and selling government bonds. |
|
|
Dollar appreciates
|
when the dollar appreciates it’s called a strong dollar. It buys more foreign
currency. |
|
|
Dollar Depreciates
|
When the dollar depreciates, it’s called a weak dollar and buys less
foreign currency. |
|
|
Taxes
|
increased taxes cause disposable income to decrease. Higher taxes discourage saving
and spending. Higher income taxes decrease spending and aggregate demand. They retard economic growth. |
|
|
Determinants of aggregate demand
|
demand—things that cause the entire demand schedule to shift
either right or left are called determinants of aggregate demand. The number one cause is net worth or personal wealth. |
|
|
Determinants of aggregate supply
|
these are the things that cause the entire supply curve to
shift either right or left and the primary thing that does that is the cost of the inputs of production. |
|
|
Investment
|
total output increases by 1% for each 1/4% of new investment in capital
equipment. |
|
|
Full Employment Act, 1946—
|
created 4 things: Fiscal policy, Monetary policy, Joint Economic
Committee of Congress, Council of Economic Advisors. |
|
|
Cyclical deficit
|
relates to the business cycle.
|
|
|
Productivity
|
education and training improve workers’ productivity.
|
|
|
Budget surplus
|
is the amount by which government revenues exceed government spending.
|
|
|
Budget deficit
|
the amount by which government spending exceeds government revenues.
|
|
|
Production possibility curve
|
demonstrates the limit of attainable outputs. It also
demonstrates allocative and production efficiency. |
|
|
Government spending
|
increased government spending will increase the GDP. Decreased
government spending will decrease the GDP. |
|
|
Government regulation
|
—increases per unit production costs and reduces supply. It also
retards economic growth. |
|
|
Easy money policy
|
when the Federal Reserve engages in an easy money policy it’s
attempting to increase private spending. In easy money policy the Fed can decrease the reserve requirement, decrease the discount rate, decrease the federal funds rate, buy government securities, or a combination. Easy money policy is used to expand the money supply. |
|
|
Tight money policy
|
policy—when the Federal Reserve is engaged in tight money policy, it is
attempting to slow down private spending. Obviously what they will do is increase the reserve requirement, increase the discount rate, increase the federal funds rate, sell government securities, or a combination. Tight money policy is used to contract the money supply |
|
|
Prime interest rate
|
is the rate commercial banks charge their favorite or best customers
|
|
|
Monetary multiplier
|
is also called the demand deposit multiplier. It refers to the number of
times each dollar is spent in the economy in one year. Monetary multiplier applies to both money expansion and money destruction. The GDP divided by total expenditures in Consumption (C) and Gross Private Domestic Spending (Ig) is regarded as the number of times the average dollar is spent on goods and services each year. |
|
|
Transactional demand for money
|
refers to the money people hold as cash for the payment
of day-to-day expenses. It does not vary with the GDP. It varies with opportunity cost. |
|
|
Fiat money
|
is paper money and is money only because the government says it is money. It
also cannot be converted into gold. The paper money in your pocket if fiat money. |
|
|
Legal tender
|
is what you must take in payment of debt public or private. This is the dollar bills
you have in your pocket. |
|
|
Token money
|
refers to coins that have no intrinsic value. They have no metal in them equal
to the face value of the coin. |
|
|
Supply of money
|
the supply of money determines the purchasing power of the monetary unit.
A lower price level increases the real purchasing power of the monetary unit. Buying something at Wal-Mart as opposed to buying something at Tiffany’s. All paper money in circulation are Federal Reserve Notes. |
|
|
Commercial bank loans
|
When a commercial bank extends or makes a loan, money is
created. When a loan is paid off, money is destroyed. When the bank extends a loan, both assets and liabilities are increased |
|
|
Tariffs
|
are a monetary restriction on
|
|
|
Say’s Law
|
supply creates its own demand.
|
|
|
Economic growth
|
is an increase in the real GDP over time. Technically it’s the increase in
real GDP per capita over time. |
|
|
Allocative efficiency
|
if you produce the specific mix of goods and services that maximizes
society’s well-being, you have attained allocative efficiency. |
|
|
Production efficiency
|
is using the mix of technology and labor that minimizes per-unit
production costs. Wage rates increase are the result increased productivity. |
|
|
Functional finance
|
federal finance used to provide a non-inflationary full-employment budget.
This is called functional finance. |
|
|
Productivity
|
is defined as the output per worker per unit of time or the output per unit of input.
|
|
|
Discretionary fiscal policy
|
the deliberate manipulation of taxing and spending by congress is
called discretionary fiscal policy and was created by the Full Employment Act of 1946. |
|
|
Strength of monetary policy
|
is speed and efficiency.
|
|
|
Open market operations
|
these are also called Federal Open Market Committee operations.
This is the buying and selling of government securities by the Federal Reserve Bank. |
|
|
Loans
|
When a loan is made, the money supply expands. When loans are repaid, the money
supply contracts. |
|
|
Balance sheet
|
a statement that summarizes the assets and the claims against those assets.
|
|
|
Production (input) costs
|
higher production input costs increase per unit production costs and
reduce aggregate supply. |
|
|
Demand-pull inflation
|
if the economy is at full production and demand continues to grow,
prices will rise. This is called demand-pull inflation. |
|
|
Cost-push inflation
|
As the economy reaches full employment, the cost of the inputs will push
up the price level. This is cost-push inflation. |
|
|
Contractionary fiscal policy
|
is designed to decrease private spending. If you decrease
private spending by increasing taxes, decreasing government spending, or a combination, this is Contractionary fiscal policy. |
|
|
Expansionary fiscal policy
|
is used to increase private spending. They can reduce taxes,
increase government spending, or a combination. |
|
|
Political business cycle
|
when politicians manipulate fiscal policy to maximize voter support
|
|
|
Checkable deposits
|
are also known as demand deposits. These are checking accounts.
|
|
|
Time deposits
|
are savings accounts of all types.
|
|
|
Monetarizing the debt
|
when a commercial bank extends or makes a loan, it exchanges a
promissory note for a demand deposit, which is a checking account, it creates money. It is called monetarizing the debt. |
|
|
Check drawn against one bank
|
when a check is drawn (written) against one bank and
deposited in another, the bank against whom it is drawn (written) loses reserves and demand deposits to the face value of the check. The bank into which it is deposited gains reserves and demand deposits to the face value of the check. |
|
|
Functions of the Federal Reserve
|
one of the main functions of the Federal Reserve is to
clear checks, but its most important function is to control the money supply. |
|
|
Till money or vault cash
|
cash held by a bank is called till money or vault cash. This is the
money held by a bank for its day-to-day operations. |
|
|
Crowding out effect
|
when the federal government finances its deficit by borrowing, private
investment is crowded out. |
|
|
Discount Rate
|
when the discount rate is reduced, money is created. When it is raised, money
is destroyed. The rate the Federal reserve charges member banks on loans. |
|
|
Commercial Banks
|
when a commercial bank buys government bonds, money is created.
|
|
|
Money supply
|
The U.S. money supply is backed by the full faith and credit of the U.S.
government. |
|
|
Fractional banking
|
this is where a bank holds less than 100% of its paid-in deposits as a
reserve. It only holds a percentage of its deposits as cash and loans out the rest. |
|
|
Federal funds rate
|
the interest paid by one commercial bank to another on overnight loans.
|
|
|
Bank Panic or Bank run
|
An unexpected large scale withdrawal from a bank.
|
