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Flashcards in Unit 4 Deck (42)
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1

Commodity money

Money that has intrinsic value (gold or silver)

2

Fiat money

Money with no intrinsic value ex cash

3

Stocks

Shares of a company you can own

4

Bond

An iOU made by the government

5

Transaction demand for money

When a person demands money in order to buy something as in a transaction

6

Asset demand money

When money is demanded to buy assets, such as stocks and stuff

7

Reserve requirements

The required percent set by the fed of money that the banks need to hold.

8

What reserve requirement does. And how it shifts

It changes the money supply

-increase for a decrease in the MS
-Decrease for a decrease in MS

9

What is the discount rate and how does it shift

The minimum interest rate set by banks for lending to other banks

-Increase discount rate to reduce MS
-decrease discount rate to increase MS

10

Open market operations and how they shift

The buying and selling of treasury bonds

Buy bonds to increase the money supply
Sell bonds to decrease the money supply

11

How are Interest rates related to investment spending

Inversely. High interest, means small investments
More money made on interest

12

How is the money supply related to the AG

They are directly related

13

The three functions of money

Medium of exchange, unit of account, store of value

14

Money multiplier

1/rr this is multiplied with the amount the bank can lend out, not the total deposit

15

Money market graph

Supply of money (vertical)
Demand for money(downward sloping)
Y axis: nominal interest rates
X axis: quantity of money

16

Investment market graph

Investment demand( downward sloping)
Y axis:rate of interest
X axis:amount of investment

17

How does and increase in money supply affect money market

Shifts MS to the right

18

How does and increase in money supply affect investment

Shift along the curve to the right

19

How does and increase in money supply affect AD/AS

Increase aggregate demand

20

How the fed fixes a recessionary gap

Decrease reserve requirements
Decrease discount rate
Buy treasury bonds

21

How does the Fed combat an inflationary gap

Raise reserve requirement
Raise discount rate
Sell treasury bonds

22

Wealth

The value of accumulated savings

23

Physical assets

A valid on tangible objects that gives the owner right to claim it as a form of money

24

Financial asset

Paper claim that entitles buyer to future income from seller

25

Liability

Requirement to pay money in the future

26

Liquid

How quickly something can be converted into cash without s loss of value

27

Illiquid

Can't be converted into money without loss of value

28

M1 money

Currency in circulation, travelers checks, and checkable bank deposits

29

M2 money

All of M1 plus everything that can be converted into cash

30

Shifters of money demand curve

Aggregate price level (directly related)
GDP (directly related)
Information technology (inversely related)
Income (directly related)