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Flashcards in ECON CH 11 Deck (34)
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1
Q

monetary policy

A

is the manipulation of MS by the Fed

2
Q

interest

A

is the price that borrowers pay to lenders for the use of their funds (savings)

3
Q

interest rate

A

also known as “the price of money” or the “opportunity cost of holding cash” and is calculated as the annual interest rate payment on a loan expressed as a % of the loan

4
Q

interest payment received per year/ amount of the loan X100

A

interest rate equation

5
Q

households and firms

A

the demand for money in the economy is the demand for M1 type of money (currency+deposits) by who

6
Q

liquidity

A

the demand for money in the economy is the demand for what

7
Q

transaction motive

A

people need liquidity to buy things (money)

8
Q

the speculation motive

A

people want their assets (wealth) to grow over time (bonus)

9
Q

trade-off

A

there is a —————between liquidity of money and the interest payments offered by interest-bearing securities (such as bonds)

10
Q

money demand

A

the relationship between interest rate and quantity of money demanded

11
Q

when interest rates are high

A

demand for bonds is likely to be high thus the quantity of MD is likely to be low

12
Q

when interest rates are low

A

demand for bonds is likely to be low thus the quantity of MD is likely to be high

13
Q

negative

A

there is a ——- relationship between interest rate and quantity of MD

14
Q

interest rate

A

the quantity of MD depends on what

15
Q

changes

A

the demand for money shifts when the total dollar volume of transactions does what

16
Q

total dollar volume of transactions

A

Y x P

17
Q

MD curve shifts to the right

A

when aggregate output (Y) rises, the total number of transactions rises, and the MD curve shifts to the ———-

18
Q

MD curve shifts to the right

A

when price level rises, most transactions costs more. thus MD curve shifts to the ——

19
Q

movement along the MD curve

A

change in interest rate does what to the MD curve

20
Q
  1. production

2. overall price level

A

MD 2 shifters

21
Q

MD shift to left

A

recession Y and P both go down, MD?

22
Q

MD shift to right

A

expansion Y and P both go up, MD?

23
Q

MS goes up

A

interest rate goes down and production goes up..MS?

24
Q

MS goes down

A

interest rate goes up and production goes down.. MS?

25
Q

MS

A

what is a vertical line that shifts to the left/right as Fed wants to follow a certain policy

26
Q

lowers interest rate

A

an increase in the MS (shifts to right) does what to interest rate

27
Q

increases interest rate

A

a decrease in the MS (shifts to left) does what to interest rate

28
Q

raises the equilibrium interest rate

A

an increase in aggregate output (Y) shifts the MD curve up, which does what to the equilibrium interest rate

29
Q

raises the equilibrium interest rate

A

an increase in the price level ℗ shifts the MD curve up, which does what to the equilibrium interest rate

30
Q

expansionary (easy) monetary policy

A

refers to the Fed policies that expand the MS in an effort to stimulate the economy

31
Q

contractionary (tight) monetary policy

A

refers to the Fed policies that contract the MS in an effort to restrain the economy

32
Q

a decrease in the interest rate

A

what causes QD of money to increase

33
Q

ease monetary policy

A

a period of high unemployment, the Fed would most likely do what

34
Q

expand the money supply

A

when economists refer to the “easy” monetary policy, they mean that the Fed is taking actions that will