Terms Flashcards
The Federal Reserve’s increasing the money supply and decreasing interest rates to increase real GDP
Expansionary monetary policy
The Federal Reserve’s adjusting the money supply to increase interest rates to reduce inflation.
Contractionary monetary policy
The interest rates banks charge each other for overnight loans.
Federal funds rate
The dual mandate of the Fed
Price stability and high employment
A framework for conducting monetary policy that involves the central bank
announcing its target level of inflation.
Inflation targeting
The actions the Federal Reserve takes to manage the money supply and interest rates.
Monetary policy
Money is acceptable to a wide variety of parties as a form of payment for goods and services.
Ex. You can walk into most stores with a $20 bill and have confidence that the store will accept it.
Medium of exchange
Money allows a way of measuring value in a standard manner.
Ex. We can assign value to objects by giving them a dollar equivalent (either a price or dollar value etc.)
“Cash cant fall apart or decay”
Unit of account
Money allows people to defer consumption to a later date by storing value. Other assets can do this too, but money does it particularly well because it is liquid. Ex. You can walk into most stores with a $20 bill and have confidence that the store will accept it. “Ability to save up to get something.”
Store of value
Money facilitates exchanges across time when we anticipate that its value in the future will be predictable. Ex. We can use money as a means for borrowing and lending because we know (approximately) its value in the future.
Standard of deferred payment
Refers to any money, such as paper currency that is authorized by a central bank or governmental body and that does not have to be exchanged by the central bank for gold or some other commodity money.
Fiat money
The narrowest definition of money:
- The sum of currency in circulation
- Checking account deposits in banks
- Holding of traveler’s checks
M1
A broader definition of the money supply:
- M1
- Savings account deposits
- Small-denomination time deposits
- Balances in money market deposit accounts
- Non-institutional money market fund shares
M2
The amount of money - currency and checking account deposits - that individuals hold.
Demand for money
An unexpected event that causes the short run aggregate supply curve to shift.
Supply shock
