Economics 4 Flashcards
How does inflation relate to unemployment?
High Unemployment : Low Inflation (Vice Versa)
What is the Discount Rate?
The rate a bank pays to borrow from the Fed.
What is the Prime Rate?
The rate a bank charges their best customers on short-term borrowings.
What is the Real Interest Rate?
Inflation-adjusted interest rate
What is the Nominal Rate?
Rate that uses current prices
What is the Risk-Free Rate?
Rate for a loan with 100% certainty of payback.
Usually results in a lower rate.
US Treasuries are an example.
What is included in the M1 money supply?
Currency- Coins- and Deposits
What is included in the M2 money supply?
Highly liquid assets other than currency- coins or deposits
What is Deficit Spending?
Increased spending levels without increased tax revenue.
Lower taxes without decrease in spending
Gamble that the multiplier effect will take over and boost economy
How can the Fed control the money supply?
By buying and selling the government’s securities.
How does the Fed control economy-wide interest rates?
By adjusting the discount rate charged to banks
