Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
88 Cards in this Set
- Front
- Back
|
depository institutions
|
businesses that accept checking and savings deposits and use a portion of them to extend loans and make investments. ex: banks, savings & loans associations, and credit unions
|
|
|
federal reserve system
|
the central bank of the US; carries out regulatory policies and is responsible for conducting monetary policy
|
|
|
central bank
|
institution designed to oversee the banking system and regulate the amount of money in the economy
|
|
|
fractional reserve banking
|
allows banks to hold less than 100% of their loans against deposits. When banks make loans, they are creating money
|
|
|
bank reserves
|
vault cash plus deposits of banks with federal reserve banks
|
|
|
required reserves
|
the minimum amount that a bank is required to keep on hand to back up deposits
|
|
|
required reserve ratio
|
the ration of reserves that bank are required to maintain in their vaults
|
|
|
excess reserves
|
actual reserves that exceed the legal requirement
|
|
|
potential deposit expansion multiplier
|
maximum potential increase in the money supply as new reserves are injected
|
|
|
FDIC
|
a federally chartered corporation that insures the deposits held by commercial banks, savings and loans associations, and credit unions
|
|
|
federal open market committee (FOMC)
|
a committee of the federal reserve that establishes federal policy with regard to the buying and selling of government securities - the primary mechanism used to control the money supply; composed of the 7 members of the board of governors and the 12 district bank presidents of the fed.
|
|
|
open market operations
|
the buying and selling of U.S. securities and other financial assets in the open market by the Fed
|
|
|
discount rate
|
the interest rate the fed charges banks for short-term loans
|
|
|
federal funds market
|
a loanable funds market in which banks seeking additional reserves borrow short-term funds (generally for 7 days or less) from banks with excess reserves
|
|
|
federal funds rate
|
the interest rate in the federal funds market
|
|
|
term auction facility (TAF)
|
newly established procedure used by the fed to auction credit for an eighty four day period to depository institutions willing to bid the highest interest rate for the funds
|
|
|
monetary base
|
the sum of currency in circulation plus bank reserves (vault cash and reserves with the fed); it reflects the purchases of financial assets and extension of loans by the Fed
|
|
|
medium of exchange
|
an asset that is used to buy and sell goods or services
|
|
|
store of value
|
an asset that will allow people to transfer purchasing power from one period to the next
|
|
|
unit of account
|
a unit of measurement used by people to post prices or keep track of revenues and costs
|
|
|
fiat money
|
money that has neither intrinsic value or the backing of a commodity with intrinsic value; ex: currency
|
|
|
liquid asset
|
an asset that can be easily converted into money without loss of value
|
|
|
M1
|
the sum of currency in circulation + checkable deposits + travelers checks
|
|
|
M2
|
M1 + savings deposits + time deposits + money market mutual fund shares
|
|
|
other checkable deposits
|
interest-earning deposits that are also available for checking
|
|
|
money market mutual funds
|
interest earning accounts that pool depositors funds and invest them in highly liquid short-term securities. Because these securities can be quickly converted into cash, depositors are permitted to write checks (which reduce their shareholdings) against their accounts
|
|
|
comparative advantage
|
the ability to produce a good at a lower opportunity cost than others
|
|
|
absolute advantage
|
a nation can produce more of a good with the same amount of resources than another nation
|
|
|
import quota
|
a specific limit or maximum quantity of a good permitted to be imported into a country during a given time period
|
|
|
dumping
|
selling a good in a foreign country at a lower price than it's sold for in the domestic market
|
|
|
General Agreement on Tariffs and Trade (GATT)
|
formed after WWII to set rules for international trade and reduce barriers among nations
|
|
|
World Trade Organization (WTO)
|
new name for GATT in 1994; responsible for monitoring trade agreements among 153 member countries
|
|
|
North American Free Trade Agreement (NAFTA)
|
trade agreement between U.S., Canada, and Mexico that went into effect in 1994; eliminated most tariffs
|
|
|
business peak
|
economic boom when businesses are operating at capacity and real GDP is growing
|
|
|
contraction
|
GDP is falling, unemployment rising
|
|
|
recession
|
2 consecutive quarters of falling GDP
|
|
|
depression
|
long and sever recession
|
|
|
trough
|
bottom of contraction phase
|
|
|
expansion
|
economic conditions begin to improve
|
|
|
GDP
|
the market value of final goods and services produced within a country during a specific time period, usually a year
|
|
|
intermediate goods
|
goods purchased for resale or use in producing another good or service
|
|
|
final goods and services
|
items purchased by their ultimate user
|
|
|
GNP
|
total market value of all final goods and services produced by the citizens of a country
|
|
|
equation for GNP
|
GNP = GDP - net income of foreigners
|
|
|
labor force
|
employed (have job, self employed) + unemployed (actively seeking employment, waiting to being/return to job)
|
|
|
not in labor force
|
no job, not seeking work
|
|
|
labor force participation rate
|
= labor force/adult population
|
|
|
unemployment rate
|
= unemployed/labor force
|
|
|
employment/population ratio
|
= employed/adult population
|
|
|
inflation rate
|
= CPI (this year) - CPI (last year) / CPI (last year)
|
|
|
marginal propensity to consume (MPC)
|
(additional consumption) / (additional income)
|
|
|
real interest rate
|
= nominal interest rate / inflation rate
|
|
|
multiplier
|
= 1 / 1-MPC
|
|
|
frictional unemployment
|
have skills to fill jobs
|
|
|
structural unemployment
|
do not have skills for jobs available
|
|
|
cyclical unemployment
|
result of recessions ; if it's 0%, the economy is at the natural rate of unemployment
|
|
|
fiscal policy
|
changing taxes or government spending with the purpose of achieving macroeconomic goals; "stimulus package"; conducted by congress and the president
|
|
|
monetary policy
|
changing the money supply with purpose of achieving macroeconomic goals; bank bailouts; conducted by the Fed
|
|
|
aggregate demand curve
|
shows the relationship between the price level and the quantity of domestically produced goods & services that all households, businesses, govts, and foreigners are willing to purchase
|
|
|
aggregate supply curve
|
shows the relationship between the price level & the quantity of domestically produced goods & services that businesses are willing to sell
|
|
|
crowding out
|
a reduction in private spending as a result of budget deficits financed by borrowing
|
|
|
ricardian equivalence
|
theory that a tax reduction financed by government debt will not impact current AD because people will realize their tax bills will be higher in the future
|
|
|
supply side economists
|
believe that changes in marginal tax rates exert important effects on aggregate supply
|
|
|
currency
|
paper bills and coins
|
|
|
demand deposits
|
non-interest earning checking deposits that depositors can access by writing a check (or using a debit card)
|
|
|
interest rate effect
|
lower price level will reduce the demand for money and lower the real interest rate, which will increase the quantity of goods and services demanded
|
|
|
reserve ratio
|
reserves/deposits
|
|
|
required reserves
|
deposits X required reserve ratio
|
|
|
excess reserves
|
reserves - required reserves
|
|
|
monetary base
|
currency + bank reserves (vault cash + deposits w/fed)
|
|
|
equation of exchange
|
inflation rate + growth rate GDP = grow rate money supply + velocity change
|
|
|
reserve ratio
|
reserves/deposits
|
|
|
required reserves
|
deposits X required reserve ratio
|
|
|
excess reserves
|
reserves - required reserves
|
|
|
monetary base
|
currency + bank reserves (vault cash + deposits w/fed)
|
|
|
equation of exchange
|
inflation rate + growth rate GDP = grow rate money supply + velocity change
|
|
|
net income of foreigners
|
income foreigners earn domestically - income nationals earn abroad
|
|
|
CPI
|
measures how much the price of a typical bundle of goods changes over time
|
|
|
GDP deflator equation
|
Real GDP = Nominal GDP 2008 X GDP Deflator 2000 / GDP Deflator 2008
|
|
|
net income of foreigners
|
income foreigners earn domestically - income nationals earn abroad
|
|
|
net capital inflow
|
saving (lending) by foreigners in U.S. institutions; what we have that other countries want; goes with exports)
|
|
|
net capital outflow
|
borrowing by foreigners from U.S. institutions; (things that other countries have that we want; goes with imports)
|
|
|
money interest rate
|
percentage of the amount borrowed that must be paid to the lender in addition to the repayment of the principle; nominal interest rate
|
|
|
real interest rate
|
interest rate adjusted for expected inflation, indicates change in purchasing power
|
|
|
board of governors
|
regulates banks and makes rules
|
|
|
district banks
|
audit commercial banks in the region
|
|
|
FOMC's role in fed
|
buy and sell government securities
|
|
|
monetarists
|
economists that believe monetary instability is the main cause of fluctuations in real GDP and that rapid growth of the money supply is the main cause of inflation
|
