Flashcards in Discovery Unit 26 Glossary Deck (21):
1
Monetary policy
One of the two main tools of macroeconomic policy. Monetary policy involves policies that affect bank lending, interest rates, and financial
capital markets.
2
central bank
Institution designed to control the quantity of money in the economy and also to oversee the safety and stability of the banking system (e.g., the Federal Reserve).
3
transmission mechanism
In relation to monetary policy, this mechanismﾒs aim is to change real gross domestic product (GDP) through changes in interest rates.
4
Open market operations
Involve the central bank buying or selling U.S. Treasury bonds in order to influence the quantity of money and the level of interest rates.
5
federal funds market
Market for interbank reserve loans. Also known as the fed funds market.
6
liquidity trap
A situation in which conventional monetary policy is ineffective in fighting an economic slump, because nominal interest rates are up against the zero bound. A liquidity trap can occur whenever there is a sharp reduction in demand for loanable funds.
7
zero bound
Refers to situation when interest rates are at or very near zero and so cannot be utilized to stimulate economic growth.
8
quantitative easing (QE)
During the 2008 recession, innovative and nontraditional steps the Fed decided to take to expand the quantity of money and credit.
9
forward guidance
Involves the Federal Reserve and other central banks around the world announcing that interest rates are going to remain low for a certain period of time into the future.
10
expansionary monetary policy
Monetary policy that expands the quantity of money and loans.
11
contractionary monetary policy
Monetary policy that reduces the amount of money and loans in the economy.
12
equation of exchange
Shows the relationship between money and gross domestic product (GDP).
13
money supply
The quantity of money available in an economy.
14
M2
Relatively liquid classification of money. Some components of M2 cannot be spent as easily as the components of M1. M2 includes everything in the category of M1, plus savings accounts, money market funds, and small time deposits (certificates of deposit).
15
M1
Most liquid classification of money. Includes currency, demand deposits, and travelerﾒs checks.
16
consumer price index
Most commonly cited measure of inflation in the United States. Calculated by government statisticians at the U.S. Bureau of Labor Statistics (BLS) based on the price level of a basket of goods and services that represents the purchases of the average consumer.
17
Real GDP
Method in which GDP is stated as nominal GDP minus the effect of inflation.
18
nominal GDP
Method in which GDP is stated in nominal values.
19
velocity
In reference to money, the total spending in the economy.
20
bank run
Occurs when depositors race to the bank to withdraw their deposits for fear that they would otherwise be lost.
21