Review Macro

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Money

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Anything that is generally acceptable to sellers in return for goods and services

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Liquid Assett

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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 and M3

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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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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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Federal Deposit Insurance Corporation

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A US government agency that insures bank deposits

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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 Reserves

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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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Deposit Expansion Multiplier

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1/Reserve requirement

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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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Equation of Exchange

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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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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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Monetariest economics

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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 changin the money supply in tandem with economic growth.

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Recessionary Gap

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The increase inexpenditures required to reach potential GDP

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Inflationary Gap

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The decrease inexpenditures required to get back to potential GDP.

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Descretionary Fiscal Policy

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Government decisions to expand or contract spending and taxes to manipulate AD.

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Fiscal Policy tools

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Government taxes and government spending

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Expansionary Fiscal Policy

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Taxing and Spending to increase AD (taxes down, spending up)

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Contractionary Fiscal Policy

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Taxing and Spending to decrease AD (taxes up, spending down)

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Fiscal Deficit

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When the government spends more than it collects in taxes (in one year)

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Government Debt

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The total amount of money the government owes to others (banks or citizens).

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Laffer Curve

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A curve showing the relationship between tax revenue and tax rate---bends backwards.

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Transfer Payments

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A payment to one person that is funded by taxing others

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Progressive Tax

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A tax whose rate rises as income increases

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Flat (Proportional Tax)

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A tax whose rate is contant visa vis income

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Regressive Tax

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A tax whose rate increases as income decreases

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VAT

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Value Added Tax--an indirect tax on the sale of goods and services

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Liberalization

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Reduction of the rules governing how people and firms may use their private property

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Privatization

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Selling of government firm to private individuals

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Thatcher and Reagan

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Leaders of UK and US in the 1980s--lead the supply side revolution

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Supply Side Econnomics

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A body of economic theory that argues for less government (taxes and spending) as a solution to macroeconomic difficulties