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22 Cards in this Set
- Front
- Back
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Money
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A common medium of exchange. The most liquid assett.
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Liquid Asset
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An asset that can easily be exchanged for goods and services
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Functions of Money
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As a medium of exchange, a store of value and a Unit of Account
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M1 Money Supply
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The financial assetts which are most liquid--Cash, travelers checks and demand deposits
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M2
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More expansive definitions of money, which include slightly less liquid money like savings accounts and money market accounts
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Central Bank
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The national bank of a country, which has many functions including controlling the banking system, being the state's fiscal agent and controlling the money supply
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International Reserve Currency
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a money assett used to settle debts internationally. This is generally the US$, but includes the yen, pound and Euro
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Fractional Reserve Banking
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A system in which banks keepless than 100% of the deposits available in the bank
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Required Reserve Ratio
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The cash reserves (% of deposits) a bank must keep on hand or in deposits with the Central Bank
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Money (Deposit Expansion) Multiplier
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1/Reserve requirement
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Discount Rate
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The interest rate charged by the central bank to commercial banks who borrow money.
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Federal Funds Rate
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The interest rate that a bank charges when it lends excess funds to another bank.
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Open Market Transactions
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The buying and selling of government bonds by the central bank to control the money supply and interest rate
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The Demand for Money
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Determined by transaction demand for money, precautionary demand for money and speculative demand for money
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Expansionary Monetary Policy
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Expanding the supply of money and lowering the interest rate to incraease AD and ultimately increase GDP
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Contractionary Monetary Policy
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Contracting the supply of money and increaseng the interest rate to decrease AD and ultimately decrease inflation
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Discretionary Monetary Policy
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Using the money supply to actively manipulate the macro economy (growth, unemployment, inflation)
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Open Market Effect
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The manner in which international economics automatically reinforces the direction of national monetar policy (ie, contractionary monetary policy is made more contractionary by interaction with the international economy.
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Monetarism and Monetarists
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A school of economic thought which believes that in the long run chnages in the money supply only affect the price level. They therefore advocate only changing the money supply in tandem with economic growth.
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Equation of Exchange (Fisher Equation)
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MV=PQ
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Velocity of Money
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The average number of times each dollar is spend on final goods and services each year.
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Quantity Theory of Money
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The theory that with constant velocity, chagnes in the quantity of money chagne nominal GDP.
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