Term
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Definition
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Term
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Definition
| elements that can be used as a medium of exchange |
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Term
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Definition
| includes everything in M1 plus time deposits; must be converted into M1 to buy goods and services |
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Term
| Why are credit card charges not considered part of the money supply? |
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Definition
| they are essentially short term loans from financial services; they also have to be paid off with the money from M1 or M2 |
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Term
| What backs or gives value to the money supply today? |
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Definition
| the only thing that backs the money supply is the belief that the U.S. dollar will remain constant |
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Term
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Definition
| clear and collect checks; supervise member banks; act as a fiscal agent for the U.S. government; supply the economy with paper money; control the money supply |
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Term
| Why do banks and other financial institutions accept deposits? |
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Definition
| allowed to make loans with the funds deposited |
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Term
| Legal Reserve Requirement |
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Definition
| the percentage of deposits that banks cannot loan out, but must be held in the form of required reserves |
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Term
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Definition
| the ratio of the change in the money supply that the banking system can create to the original amount of excess reserves available |
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Term
| Difference between legal required and excess reserves |
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Definition
| legally required reserves cannot be loaned by banks; excess reserves are above and beyond the amounts that are legally required |
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Term
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Definition
| involve the purchase or sale of government bonds by the Fed |
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Term
| What monetary policy tools are available to the Fed to increase or decrease the money supply? |
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Definition
| increase: lower legal reserve requirement, purchase government bonds, reduce discount rate; decrease: opposite |
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Term
| chain of causation associated with Keynesian monetary policy |
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Definition
| undertake actions to increase money supply |
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Term
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Definition
| further increases in money supply would not cause the rate of interest to decline, which might not stimulate additional investment spending |
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Term
| monetary policy working in the same direction |
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Definition
| lower legal reserve requirement, lower the discount rate, or buy government bonds |
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Term
| monetary and discretionary fiscal policies working in the same direction |
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Definition
| increase government expenditures or reducing taxes |
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Term
| How did the Classical economist use the quantity theory of money? |
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Definition
| long run movements of the price level |
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Term
| How do the modern Monetarists use the quantity theory of money? |
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Definition
| money is held for the purpose of buying goods and services |
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Term
| Velocity of the money supply |
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Definition
| average number of times each dollar is spent to purchase a part of the economy's GDP in a given year |
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Term
| Quantity theory of money written as demand schedule for the holding of money balances |
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Definition
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Term
| What are the principle policies advocated by Monetarists today, and how do they differ from those advocated by Keynesian monetary economists? |
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Definition
| Monetarist believe that the Fed should not engage in constantly monitoring and changing the money supply |
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Term
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Definition
| shows combinations of inflation rates and unemployment rates |
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Term
| Phillips curve in long and short run |
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Definition
| long run is vertical; short run is negatively sloped |
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Term
| Natural rate of unemployment |
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Definition
| the unemployment rate associated with the level of real GDP at which the vertical AS schedule is drawn |
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Term
| Explain how changes in the money supply cause the rate of interest to change in Keynesian monetary theory |
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Definition
| an increase in the money supply will cause a reduction in the rate of interest |
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