1lower demand for loans do what for the money supply and inflation
reduce the growth of money supply and lower inflation
2what does open market purches do to supply of bank reserves
shift right
3A fall in bank account balances will demand curve of bank reseves
shift left
4Fisher equation
real interest rate = nominal interest rate - rate of inflation
5the federal fund market
The market where banks borrow and lend reserves to one another
6A decrease in in the supply of federal reserves do what to inflation
lower inflation
7How does the fed shift the supply of reserves
buy or sell reserves on the markets
8What is co-movement
many variables affect growth and contraction in the government
9An increase in the supply of bank reserves does what to the federal fund rate
lowers FFD
10Real business cycle theory
emphasizes changes in productivity and technology
11The lower federal fund rate does what for the demand for loans
increase demand for loans
12Keynesian theory
focuses on business and consumer expectations of the future
13Increase supply of bank reserves does what to inflation
increases inflation
14Financial and monetary theory
looks at changes in prices and interest rates
15the fed decrease the supply of bank reserves to the federal fund rate
increases FFR
16Countercyclical policies
reduce the intensity of economic fluctuations
17an increase in FFR does what to long-term interest rates
increase interest rates
18Expansionary policy
reduce impact of a recession
19managed exchange rate
a system between fixed and flexible
20Contractionary policy
try to slow down the economy
21ON RRP rate
Overnight Reverse Repurchase Agreement Facility
22Money three functions
medium of exchange, unit of account, store of value
23what does expansionary policy do to short-term interest rates
lower short term interest rates
24velocity is
the circulation rate of money
25the equation for the Taylor rule
FFR = long run FFR target + 1.5(inflation rate - inflation rate target) + 0.5( output gap in % points)
26The quantity theory of money
velocity is constant in the long run
27fixed exchange rate
the government intervenes to keep a target rate
28flexible (floating) exchange rate
not government intervention in foreign markets
29When the nominal exchange rate is falling the currency is
depreciating
30when the nominal exchange rate rises the currency is
appreciating
31Net exports is
exports minus imports
32losers of unexpected inflation
banks getting payments on fixed interest rate mortgages, a worker receiving a wage that is not indexed for inflation, retirees that pensions are not indexed for inflation
33How can the feds shift the demand of reserves
changing reserve requirements and changing interest paid on reserves
34What does the central bank do
monitors financial institutions, controls certain interest rates, indirectly controls the money supply
35Ways inflation can stimulate an economy
”fall in real wages allows companies to hire more workers, increase in price outputs causes labor demand to shift right”
36What is an absolute advantage
a producer can produce more units per hour than other producers
37Government expenditure multiplier equation
government expenditure multiplier = changes in GDP / changes in government expenditure
38bank reserves are
combination of deposits that private banks hold at the central bank and cash in their vaults
39current account equation
(Net exports) + (Net factor payments from foreigners) + (Net transfers from foreigners)
40what activities do the federal reserve engage in
regulation, interbank transfers, manipulating the number of bank reserves
41What is a competitive advantage
when a producer has a lower opportunity cost
42winners of unexpected inflation
homeowner paying a mortgage with fixed nominal interest, firms paying wages that are not indexed for inflation
43What is the dual mandate of the federal reserve
low inflation and max employment
44contractionary fiscal policy uses
expenditure and higher taxes to reduce the growth rate of the GDP
45Expansionary fiscal policy uses
government expenditure and lower taxes to increase the growth rate of the GDP
46inflation tax
Decline in value of cash holdings due to inflation
47output gap equation
gdp - trend gdp over trend gdp times 100
48net capital out flows is
savings minus investment
49inflation rate equation
the growth rate of money supply - growth rate of real gdp
50velocity formula
nominal gpd over money supply
51Why does the fed manipulate the quantity of bank reserves
influence short-term interest rates, influence money supply and inflation, influence long-term interest rates
52Raising logistical cost
frequent price changes
53IORB rates
interest on reserve balance
54Inflation social cost
inflation tax, raising logistical costs, distorting relative prices
55nominal currency exchange rate equation
units of foreign currency over 1 unit of domestic currency
56the equation for the real interest rate (fisher equation)
”real interest rate = nominal interest rate - rate of inflation”
57The increase in bank loans does what to the money supply and inflation
increases the growth of money supply and inflation
58fiat money
the legal tender that is not backed by gold