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40 Cards in this Set

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  • Back
Money
Anything that is generally acceptable to sellers in return for goods and services
Liquid Assett
An asset that can easily be exchanged for goods and services
Functions of money
As a medium of exchange, a store of value and a Unit of Account
M1 Money Supply
The financial assetts which are most liquid--Cash, travelers checks and demand deposits
M2 and M3
More expansive definitions of money, which include slightly less liquid money like savings accounts and money market accounts
International Reserve Currency
a money assett used to settle debts internationally. This is generally the US$, but includes the yen, pound and Euro
Federal Deposit Insurance Corporation
A US government agency that insures bank deposits
Fractional Reserve Banking
A system in which banks keepless than 100% of the deposits available in the bank
Required Reserves
The cash reserves (% of deposits) a bank must keep on hand or in deposits with the Central Bank
Deposit Expansion Multiplier
1/Reserve requirement
Central Bank
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
Equation of Exchange
MV=PQ
Velocity of Money
The average number of times each dollar is spend on final goods and services each year.
Quantity Theory of Money
The theory that with constant velocity, chagnes in the quantity of money chagne nominal GDP.
Discount Rate
The interest rate charged by the central bank to commercial banks who borrow money.
Federal Funds Rate
The interest rate that a bank charges when it lends excess funds to another bank.
Open Market Transactions
The buying and selling of government bonds by the central bank to control the money supply and interest rate
The demand for money
Determined by transaction demand for money, precautionary demand for money and speculative demand for money
Expansionary Monetary Policy
Expanding the supply of money and lowering the interest rate to incraease AD and ultimately increase GDP
Contractionary Monetary Policy
Contracting the supply of money and increaseng the interest rate to decrease AD and ultimately decrease inflation
Monetariest economics
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 changin the money supply in tandem with economic growth.
Recessionary Gap
The increase inexpenditures required to reach potential GDP
Inflationary Gap
The decrease inexpenditures required to get back to potential GDP.
Descretionary Fiscal Policy
Government decisions to expand or contract spending and taxes to manipulate AD.
Fiscal Policy tools
Government taxes and government spending
Expansionary Fiscal Policy
Taxing and Spending to increase AD (taxes down, spending up)
Contractionary Fiscal Policy
Taxing and Spending to decrease AD (taxes up, spending down)
Fiscal Deficit
When the government spends more than it collects in taxes (in one year)
Government Debt
The total amount of money the government owes to others (banks or citizens).
Laffer Curve
A curve showing the relationship between tax revenue and tax rate---bends backwards.
Transfer Payments
A payment to one person that is funded by taxing others
Progressive Tax
A tax whose rate rises as income increases
Flat (Proportional Tax)
A tax whose rate is contant visa vis income
Regressive Tax
A tax whose rate increases as income decreases
VAT
Value Added Tax--an indirect tax on the sale of goods and services
Liberalization
Reduction of the rules governing how people and firms may use their private property
Privatization
Selling of government firm to private individuals
Thatcher and Reagan
Leaders of UK and US in the 1980s--lead the supply side revolution
Supply Side Econnomics
A body of economic theory that argues for less government (taxes and spending) as a solution to macroeconomic difficulties