ࡱ> ac`#` Sbjbjmm 22S4W,moooH878'W$Xh:[KW)))KW`W111).m1)m111 9W1mvW0W1[ [1[1<>.,1Z$~KWKW' W)))) Final Vocab Unit 4 + Money Supply M1; cash, demand deposits(checking accounts), and travelers checks M2 Less liquid form of money. Savings accounts, CDs, money market Asset something you own; house, car, backpack Liability something you owe to someone; car loan, mortgage, student loan T-account balance sheet; shows assets and liabilities of a bank or other business Required Reserves the dollar(currency) amount a bank must keep by banking rule Excess reserves the extra money (cash) a bank is keeping on hand which could be used for loans Reserve the percent of a banks demand deposits it must keep as cash and not Requirement lend out; currently set at 10% by the Federal Reserve Money Multiplier 1/Reserve Requirement; helps determine the maximum change in the money supply Federal Reserve Americas central bank; controls money supply monetary policy Monetary Policy changes in OMO, discount rate and RR that change the money supply; carried out by the Federal Reserve bank(central bank) Open Market the buying and selling of securities by the Federal Reserve to control the Operations money supply; used most often of the three tools Discount Rate the interest rate the FED charges banks when they take out a loan Federal Funds the interest rate BANKS charge OTHER BANKS when they take out Rate loans from each other Classical Economics belief that a capitalistic economy employs its resources fully Keynesianism belief that an economy doesnt always operate at full employment and needs fiscal and monetary policy to increase aggregate spending Monetarism view that the main cause of changes in aggregate output and the price level are fluctuations in the money supply Equation of exchange MV=PQ, M is the money supply, V is the velocity of money, P is the Price level, Q is the physical volume of final goods and services produced Velocity of Money the number of times per year the average dollar in the money supply is spent for final goods and services Crowding Out Effect rise in interest rates and decrease in investment spending due to increased money market borrowing by the government Stagflation inflation accompanied by a stagnant GDP and a high unemployment rate Natural Rate economy is stable in the long run at the natural rate of unemployment; Hypothesis Phillips curve is vertical Rational Expectations business firms and households take action for their own personal Theory interest to counteract monetary and fiscal policy New Classical economy is stable at the full-employment level of output in the long- Economics run because of price and wage flexibility, despite short run instability Demand-Pull Inflation increase in aggregate demand causes increase in price level Cost-Push Inflation reduction in aggregate supply (higher resource costs) increase price level Wage-Price Controls a policy which legally fixes the maximum amounts wages and prices may be increased in any period Supply-Side emphasis on costs and aggregate supply in explaining inflation, Economics unemployment and economic growth Laffer Curve relationship between tax rates and government tax revenues; illustrates maximum tax revenues Reaganomics policies of Reagan administration based on supply-side economics and intended to reduce inflation and the unemployment rate Autarky A situation in which a country cannot trade with other countries Free Trade An economy unhindered by the government; no government involvement (Open Economy) in regulating imports and exports Tariff A tax levied on imports Import quota A legal limit on the quantity of a good that can be imported. Balance of payments Summarizes a countrys transactions with the rest of the world Trade balance Difference between a countys imports and exports of goods; included in the balance of payments account; X-M Current account records a nations exports and imports of goods and services, net investment income, and net transfers Financial account records the flows of money from the purchase and sale of real and financial assets(stocks, bonds, real estate) at home and abroad Debit negative using foreign currency to make a transaction Credit positive earns foreign currency Foreign exchange Market in which currencies are exchanged market Exchange rates The prices at which currencies are traded Appreciation When a currency rises against another currency Depreciation When a currency falls against another currency Equilibrium Matches the quantity of that currency supplied to the foreign exchange exchange rates market to the quantity demanded Fixed exchange Rates the government actively regulates (or fixes); China Rates Floating exchange Exchange rates that fluctuate freely in the open market ; most of the world has currency markets that are base on supply and demand Foreign exchange reserves used to buy any surplus of a countrys currency Reserves Philips Curve Shows the relationship between unemployment and inflation after (Long-run) expectations of inflation have had time to adjust (vertical line) Philips Curve Negative short-run relationship between the unemployment rate and the (Short-run) inflation rate downsloping / negative or inverse relationship Economic Growth technology and productivity Determinants Human capital Physical capital Public policy values and institutions that influence markets Money Market Changes in supply Changes in Demand - Loanable Funds Market Changes in Supply - Changes in Demand - Investment Demand Market Contractionary Monetary Policy goal - Options - Expansionary Monetary policy goal - Options - * + l ~ ; < a W X x y   ) * Y Z [ EpŹŭŭŹŭŭŭqeeh$CJOJQJaJhKUhKUCJOJQJaJhKU5CJOJQJaJhM|hKU5CJOJQJaJhKUhKU5CJOJQJaJhKUCJOJQJaJhM|CJOJQJaJhsgCJOJQJaJh(gCJOJQJaJhZMCJOJQJaJhZMOJQJhq5>*CJOJQJaJ'ij+ ,  3 ( x y   Z [ 1$$1$a$S[ GHpq{}%LMGH; p1$^p`1$pq:Fo;?D#?CDxhiauw ACOQS̴̴̴̴̐̐hCCJOJQJaJh$CJOJQJaJhKUCJOJQJaJhiCJOJQJaJhqCJOJQJaJhM|CJOJQJaJhZMhZM5CJOJQJaJhZMCJOJQJaJh(gCJOJQJaJ8;?<='(stEFSp`1$^p``gdM|1$gdq p1$^p`1$6st45hqrd1$gdZM1$gdM| p1$^p`p`1$^p``gdqdTUvw p1$^p`gdi p1$^p` DERS p1$^p`p1$^p`gdi0PP/ =!"#$% <@< iNormalCJ_HmH sH tH DA@D Default Paragraph FontVi@V  Table Normal :V 44 la (k(No List S2ij+,3(xyZ[GHpq{}% L M G H ; ? < = '(stEFS6st45hqrdTUvw DERU000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000pS[ ;d SSzxkNzxlNzxllNzx,lN88zzU??U9*urn:schemas-microsoft-com:office:smarttagsplaceB*urn:schemas-microsoft-com:office:smarttagscountry-region } ? 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