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Macro Unit 3
Key terms
| 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; this amount varies inversely with the interest rate |
| money market | the market in which the demand for and the supply if money determine the interest rate (or the level of interest rates) in the economy |
| reserve ratio | The portion (expressed as a percent) of depositors' balances banks must have on hand as cash. This is a requirement determined by the country's central bank, which in the U.S. is the federal reserve. |
| federal funds rate | the interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reserves |
| Open Market Operations | the buying and selling of U.S government securities by the federal reserve banks for purposes of carrying out monetary policy |
| easy money policy | federal reserve system actions to increase the money supply to lower interest rates and expand real GDP |
| tight money policy | federal reserve system actions that contract, or restrict, the growth of the nations money supply for the purpose of reducing or eliminating inflation |
| Prime interest rate | the benchmark interest rate that banks use as a reference point a wide range of loans to businesses and individuals |
| Phillips Curve | a curve showing the relationship between the unemployment rate (on the horizontal axis) and the annual rate of increase in the price level (on the vertical axis) |
| Aggregate supply shock | sudden large changes in resource costs that shift an economies aggregate supply curve |
| unit of account | a standard unit in which prices can be stated and the values of goods and services can be compared; one of the three functions of money |
| M1,M2, M3 | narrowly defined M1 more broadly defined M2 and M3 |
| total demand for money | the sum of the transactions demand for money and the 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 banks or thrifts check able deposits |
| excess reserve | the amount by which a banks thrifts actual reserves exceed its required reserves; actual reserves minus required reserves |
| money multiplier | the multiple of its excess reserves by which the banking system can expand check able deposits thus the money supply by making new loans (or buying securities) equal to 1 divided by the reserve requirement |
| discount rate | the interest rate that the federal reserve banks charge on the loans they make to commercial banks and thrift institutions |
| federal funds rate | the interest rate banks and other depository institutions charge one another on overnight loans made out of their excess |
| velocity of money | the number times per year that the average dollar in the money supply is spent for final goods and services; nominal GDP divided by the money supply |
| Laffer curve | a curve relating government tax rates and tax revenues and on which a particular tax rate (between zero and 100 percent) maximizes tax revenues |
Created by:
Rmenendez12
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