Deck 5 Flashcards
(14 cards)
define demand pull inflation
when spending exceeds the economy normal output capacity
define cost-push inflation
occurs from an increase in cost of producing goods and services
define nominal interest rate
interest rates that include the inflation premium
define real interest rate
interest rates that do not include the inflation premium
what is M1, M2, M3 money
M1= currency and demand deposits
M2=M1+savings deposits and small time deposits
M3=M2+larger time deposits over $100,000
what are the 3 functions the fed reserve uses to control monetary policy
Reserve requirement - amount of money a bank can’t lend out
Open market - purchase or selling of government securities
Discount rate - the rate at which member banks borrow from federal reserve
which function is most used by the fed reserve
open-market
explain the difference between monetary and fiscal policy
monetary policy is where fed reserve attempts to control money supply and keep inflation under control. Fiscal policy is where government tries to control economy bi raising or lowering taxes, raising or lowering government spending,
what is a tariiff
tax on an imported product
what is a quota
a restriction on the amount of goods that may be imported over a period of time
what is an embargo
a total ban on the importation of specific goods
what is the forward/premium discount formula
forward rate-spot rate/spot rate * 365/days in spot period
what is a forward
a contract to purchase and sell a particular currency or commodity at a specified price
what is a future
contract to take delivery of a currency or commodity at a future date using at-the then market price
