ECON 3120: Exam 2

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ECON 3120
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RGDP Leading
when RGDP changes before the other variable
RGDP Lagging
when RGDP changes after the other variable
Loanable Funds Market
encompasses all of the banks, federal reserve system, and financial systems within an economy with the purpose of regulating savings, investment, and money
any item that is - regularly used as a medium of exchange - a unit of account (must be able to measure debt) -a method of tracking wealth (meaning that it can maintain value over time)
Money
M1
includes cash, currency, coin, demand deposit accounts (checking), and traveler's checks
M2
includes less liquid sources like savings accounts and financials (bank money market accounts, CDs, 401ks, IRAs)
M3
includes financials over $100,000 and US deposits in foreign banks
Open Market Operations
the buying and selling of US government bonds in secondary markets (not who you directly buy bonds from)
Money Multiplier
shows how the same money is re-spent in society, thus raising money supply by more than the initial deposit
Crowding Out
occurs when borrowing by the government reduces the funds available for borrowing as investment
Discount Rate
interest rate that commercial banks can borrow from the federal reserve
Federal Funds Rate
the interest rate that banks are legally allowed to charge each other
Quantitative Easing
occurs when the Federal Reserve buys financial assets as a method to increase the money supply when the interest rate is already at or near 0 through bond market transactions
Quantity Theory of Money MV=PY
attempts to show how effective changes of the money supply influence production and/or the inflation rate
Value of Money (VL=1/P)
the reciprocal of the price level in society
Fischer Effect
shows a one to one adjustment in the nominal interest rate when the inflation rate changes
Money Neutrality
the belief that changes in the money supply only affects nominal variables (prices, wages) and not real variables (real interest rate, RGDP)
Board of Governors
Set regulations, long and short-term objectives, and are the main conductors of monetary policy
Federal Open Market Committee
influence the interest rate through open market operations
District Banks
Their job is to provide the commercial banks with currency, enforce the banking regulations, and act as a lender of last resort (loan money out to banks)
Loanable Funds Market key words
-funds -savings -investment -consumers -firms spending -new home mortgages
Money Market key words
Money Supply -Fed Res, its parts and policies -Commercial banks -Depositors Money Demand -GDP components -Population -Government spending
Value Model key words
-prices -price levels -inflation, disinflation, deflation -Money Supply  -Money Demand

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