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Unit 3: Money
Macroeconomics
| Question | Answer |
|---|---|
| Medium of Exchange | Any item sellers generally accept and buyers generally use to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter. |
| Store of Value | An asset set aside for future use; one of the three functions of money. |
| Asset Demand for Money | The amount of money people want to hold as a store of value; 1/interest rate |
| Money Market | The market in which the demand for and the supply of money determine the interest rate (or the level of interest rates) in the economy. |
| Unit of Account | A standardized unit in which prices can be stated and the value of goods and services can be compared; one of the three functions of money |
| M1 | The most narrowly defined money supply, equal to the currency in the hands of the public and the checkable deposits of commercial banks and thrift institutions. |
| M2 | A more broadly defined money supply, M2= M1+Saving Deposits (MMDAs)+small time deposits+MMMFs |
| M3 | A very broadly defined money supply, M3=M2+large time deposits (100,000+) |
| Total Demand for Money | Transactions Demand for Money+Asset Demand for Money |
| Required Reserve | The funds that banks and thrifts must deposit with the Federal REserve Bank (or hold as vault cash) to meet the legal reserve requirement; a fixed percentage of the bank's or thrift's checkable deposits |
| Reserve Ratio | Commercial bank's required reserves/ Commercial bank's checkable-deposit liabilities |
| Excess Reserve | Actual reserves-Required reserves |
| Federal Funds Rate | The interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reserves |
| Money Multiplier | 1/required reserve ratio |
| Open Market Operations | The buying and selling of U.S government securities by the Federal Reserve Banks for the purposes of carrying out monetary policy. |
| Discount Rate | The interest rate that the Federal Reserve Banks charge on the loans they make to commercial banks and thrift institutions |
| Easy Money (Expansionary Monetary Policy) | Federal Reserve Banks makes banks loans less expensive and more available and thereby increase aggregate demand, output and employment. Fed buys securities, lowers reserve ratio and lowers the discount rate |
| Tight Money (Restrictive Monetary Policy) | Federal Reserve Bank tightens supply of money in order to reduce spending and control inflation. Fed sells securities, increases the reserve ratio and raises the discount rate. |
| Prime Interest Rate | The benchmark interest rate that banks use as a reference point for a wide range of loans to businesses and individuals. |
| Velocity of Money | The number of times per year the average dollar is spend on goods and services. |
| Phillips Curve | A curve showing the relationship between the unemployment rate (x-axis) and the annual rate of increase in the price level (y-axis). |
| Laffer Curve | A curve relating the government tax rates and tax revenues and on which a particular tax rate (between zero and 100 percent) maximizes tax revenues. |
| Aggregate Supply Shocks | Sudden, large changes in resource costs that shift an economy's aggregate supply curve |
Created by:
lanngoctran
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