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Flashcards in ECON CH 11 Deck (34):
1

monetary policy

is the manipulation of MS by the Fed

2

interest

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

3

interest rate

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

interest payment received per year/ amount of the loan X100

interest rate equation

5

households and firms

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

6

liquidity

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

7

transaction motive

people need liquidity to buy things (money)

8

the speculation motive

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

9

trade-off

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

10

money demand

the relationship between interest rate and quantity of money demanded

11

when interest rates are high

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

12

when interest rates are low

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

13

negative

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

14

interest rate

the quantity of MD depends on what

15

changes

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

16

total dollar volume of transactions

Y x P

17

MD curve shifts to the right

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

18

MD curve shifts to the right

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

19

movement along the MD curve

change in interest rate does what to the MD curve

20

1. production
2. overall price level

MD 2 shifters

21

MD shift to left

recession Y and P both go down, MD?

22

MD shift to right

expansion Y and P both go up, MD?

23

MS goes up

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

24

MS goes down

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

25

MS

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

26

lowers interest rate

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

27

increases interest rate

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

28

raises the equilibrium interest rate

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

29

raises the equilibrium interest rate

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

30

expansionary (easy) monetary policy

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

31

contractionary (tight) monetary policy

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

32

a decrease in the interest rate

what causes QD of money to increase

33

ease monetary policy

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

34

expand the money supply

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