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ECON 3120: Exam 2

RGDP Leading
when RGDP changes before the other variable
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RGDP Lagging
when RGDP changes after the other variable
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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
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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
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M1
includes cash, currency, coin, demand deposit accounts (checking), and traveler's checks
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M2
includes less liquid sources like savings accounts and financials (bank money market accounts, CDs, 401ks, IRAs)
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M3
includes financials over $100,000 and US deposits in foreign banks
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Open Market Operations
the buying and selling of US government bonds in secondary markets (not who you directly buy bonds from)
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Money Multiplier
shows how the same money is re-spent in society, thus raising money supply by more than the initial deposit
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Crowding Out
occurs when borrowing by the government reduces the funds available for borrowing as investment
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Discount Rate
interest rate that commercial banks can borrow from the federal reserve
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Federal Funds Rate
the interest rate that banks are legally allowed to charge each other
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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
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Quantity Theory of Money MV=PY
attempts to show how effective changes of the money supply influence production and/or the inflation rate
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Value of Money (VL=1/P)
the reciprocal of the price level in society
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Fischer Effect
shows a one to one adjustment in the nominal interest rate when the inflation rate changes
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Money Neutrality
the belief that changes in the money supply only affects nominal variables (prices, wages) and not real variables (real interest rate, RGDP)
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Board of Governors
Set regulations, long and short-term objectives, and are the main conductors of monetary policy
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Federal Open Market Committee
influence the interest rate through open market operations
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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)
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Loanable Funds Market key words
-funds -savings -investment -consumers -firms spending -new home mortgages
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Money Market key words
Money Supply -Fed Res, its parts and policies -Commercial banks -Depositors Money Demand -GDP components -Population -Government spending
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Value Model key words
-prices -price levels -inflation, disinflation, deflation -Money Supply  -Money Demand
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