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26 Cards in this Set
- Front
- Back
barter
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exchange of goods, services, or assets, without the use of money
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deflation
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when the aggregate price level falls
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liquidity
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the ease of use of an asset as a medium of exchange
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commodity money
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a good used as money that is also valuable in itself
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fiat money
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a medium o exchange used as money because a government says it has value and people accepts it
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MI
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a measurement of the money supply equal to currency, checkable deposits, and traveler's checks
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financial intermediary
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an institution such as a bank, savings, and loan association, or life insurance company that accepts funds from savers and make loans to borrow
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bank reserves
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funds not loaned out by private bank, but kept as vault cash or on deposit at the Fed. Reserve
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required reserves
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reserves that banks are required to hold by the Fed
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open market operations
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sales or purchases of government bonds by the Fed
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monetary base (high-powered money)
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currency plus bank reserves
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money multiplier
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the ratio of the money supply to the monetary base, it tells how much money supply will change for a given change in high-powered money
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discount rate
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the interest rate t which banks can borrow reserves from the Fed discount window
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federal funds rate
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the interest rate determined in the private market for overnight loans of reserves among banks
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prime bank rate
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the interest rate that banks charge their most trusted commercial borrowers
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accelerator principle
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the idea that high GDP growth leads to high investment growth
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expansionary monetary policy
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the use of monetary policy took to increase the money supply, lower interest rates, and stimulate a higher level of economic activity
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accommodating monetary policy
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loose or expansionary monetary policy intended to counteract recessionary tendencies in the economy
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contradictionary monetary policy
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the use of monetary policy tools to limit the money supply, raise interest rates, and encourage a leveling-off or reduction in economic activity
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quantity equation
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M x V=P x Y where M is the money supply, V is the velocity of money, P is the price level and Y is the real output
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velocity of money
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the number of times a dollar would have to change hands during a year to support nominal GDP, calculated as V = (PxY)/M
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quantity theory of money
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the theory that money supply is directly related to nominal GDP, according to the equation M x V= P x Y
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monetary neutrality
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the idea that changes in the money supply may affect only prices, while leaving output unchanged
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money supply rule
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committing to letting the money supply grow at a fixed percentage rate per year
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monetarism
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a theory associated with Milton Friedman, which claims that macroeconomic objectives are best met by having the money supply grow at a steady rate
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monetizing the deficit
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when a central bank buys government debt as it is issued
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