Help
Options
Didn't know it?
click below
click below
Knew it?
click below
click below
Don't Know
Remaining cards (0)
Know
retry
shuffle
restart
0:00
Embed Code - If you would like this activity on your web page, copy the script below and paste it into your web page.
Normal Size Small Size show me how
Normal Size Small Size show me how
macro quiz 4
| Term | Definition |
|---|---|
| money | the set of assets in an economy that people regularly use to buy goods and services by acting as a medium of exchange, unit of account, and a store of value |
| medium of exchange | items that buyers give to sellers when they want to purchase goods and services |
| unit of account | yardstick people use to post prices and record debts |
| store of value | item that people can use to transfer purchasing power from the present to the future |
| commodity money | money that takes the form of a commodity with intrinsic value (valuable even if it wasn't "money", like gold) |
| flat money | money without intrnsic value, used as money because of government decree |
| money stock | the quantity of money circulating in the economy |
| demand deposits | balances in bank accounts that depositors can access on demand by writing a check |
| money stock equations | M=C+D (currency+deposits) =(1/R)D |
| M1 | currency, demand deposits at banks, some other liquid deposits (balances in savings accounts) |
| M2 | everything considered M1 including smalltime deposits and money market funds (except those held in restricted retirement accounts) does not include credit cards |
| Federal Reserve | acts as lender of last resort for U.S banks that cannot borrow elsewhere and make decisions regarding monetary policy. controls money supply |
| open market operations | buy securities from banks to increase money supplies, sells to lessen money supply |
| rserves | desposits that banks have received but have not loaned out. Fed sets a reserve requirement that a bank must keep in sotrage which they pay interest on |
| reserve ratio | fraction of deposits that banks hold as reserve (total reserves as a percentage of total deposists) |
| money multiplier | amount of money that results from each dollar of reserves (1/R) |
| discount rate | the interest rate on the loans that the Fed makes to banks |
| Federal funds rate | the short-term interest rate that banks charge one another for loans (banks can borrow from e/o reserves) will decrease when feds buy bonds, increase when fed sells bonds |
| relationship between price and value of money | higher prices, lower value so demand will increase to have a greater physical quantity of it |
| quantity theory of money | the quantity of money available in an economy determines the value of money, and growth in the quantity of money is the primary cause of inflation (with more money available, money is worth less) |
| nominal variable | variables measured in monetary units |
| real variable | variables measured in physical units |
| relative price | value of money of a good in terms of another to put nominal variables (price) into real variables |
| real wage | price of labor relative to price of output |
| monetary neutrality | the irrelevance of monetary changes to real variables |
| velocity of money | the rate at which money changes hand (P*Y)/M |
| quantity equation | M*V=P*Y=nominal GDP |
| inflation tax | the revenue the government raises by creating money |
| quantity theory of money in the long run | V is relatively stable over time, a change in M causes nominal GDP to change by the same %, a change in M does not affect Y (money's neutral) so Y is det. by tech and resources, P changes by same % as P*Y and M, rapid money growth causes rapid inflation |
| principle of monetary neutrality | an increase in the rate of money growth raises the rate of inflation but does not affect any real variable (since real interest rate=nominal interest rate-inflation) |
| fisher effect | one-for-for adjustment of nominal interest rate to inflatino rate |
| money growth and interest rate | increase in rate of money growth raises rate of inflation but only impacts nominal variables |
| shoeleather cost | the resources wasted when inflation encourages people to reduce their money holdings (time and convenience sacrificed since money loses value when it's held onto it in cash) |
| menu costs | the costs of changing prices |
| inflation-induced tax distortions | inflation makes nominal income grow faster than real income and taxes are based on nominal income so some are not adjusted for inflation |
| confusion and inconvenience | difficult to figure out how to account for costs in the long term |
| arbitrary redistributions of wealth | redistributes wealth among the population but not by merit nor need (was worth something at one point but then isn't later on; good for borrowers, bad for lenders) |
Created by:
allison_07