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Macroeconomics 11+12

Macroeconomics Chapters 11+12

money the set of assets in an economy that people use to buy goods and services
medium of exchange an item that buyers give to sellers when they want to purchase goods and services
unit of account the yardstick people use to post prices and record debts
store of value an 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
fiat money money without intrinsic value that is used as money because of government decree
currency the paper bills and coins in the hands of the public
demand deposits balances in bank accounts that depositors can access on demand by writing a check
Federal Reserve the central bank of the United States
central bank an institution designed to oversee the banking system and regulate the quantity of money in the economy
money supply the quantity of money available in the economy
monetary policy the setting of the money supply by policymakers in the central bank
reserves deposits that banks have received but have not loaned out
fractional-reserve banking a banking system in which banks hold only a fraction of deposits as reserves
reserve ratio the fraction of deposits that banks hold as reserves
money multiplier the amount of money the banking system generates with each dollar of reserves
bank capital the resources a bank's owners have put into the institution
leverage the use of borrowed money to supplement existing funds for purpose of investment
leverage ratio the ratio of assets to bank capital
capital requirement a government regulation specifying a minimum amount of bank capital
open-market operations the purchase and sale of U.S. government bonds by the Fed
discount rate the interest rate on the loans that the Fed makes to banks
reserve requirements regulations on the minimum amount of reserves that banks must hold against deposits
federal funds rate the interest rate at which banks make overnight loans to one another
quantity theory of money quantity of money available determines price level and growth rate determines the inflation rate
nominal variables variables measured in monetary units
real variables variables measured in physical units
classical dichotomy the theoretical separation of nominal and real variables
monetary neutrality changes in the money supply do not affect real variables
velocity of money the rate at which money changes hands
quantity equation quantity of money * velocity of money =price of output * amount of output
not the quantity equation quantity of money * amount of output = price of output * velocity of money
inflation tax the revenue the government raises by creating money
Fisher effect one-for-one adjustment of the nominal interest rate to the inflation rate
shoeleather costs resources wasted when inflation encourages people to reduce their money holdings
Created by: dreadzone



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