Economics Test 3 Flashcards Preview

microeconomics fall 2018 southern union > Economics Test 3 > Flashcards

Flashcards in Economics Test 3 Deck (38)
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1
Q

how to change the economy by changing the money supply

A

monetary policy

2
Q

characteristics of money

A

medium of exchange

store of value

3
Q

m1 includes

A

cash, coins, demand deposits, travelers checks

4
Q

m2 includes

A

m1 + saving accounts, small denomination time deposits

5
Q

m3 includes

A

m2 + large denomination time deposits

6
Q

L includes

A

m3 + US savings bonds

7
Q

how much cash is in the economy

A

monetary base

8
Q

how much money can be created out of monetary base

A

money supply

9
Q

the percentage of deposits the bank has to hold as cash either in their vault or on deposit at the federal reserve bank

A

required reserve ration

10
Q

the amount of deposits the bank can do whatever it wants with

A

excess reserves

11
Q

monetary base * DEM =

A

money supply

12
Q

what is DEM

A

deposit expansion multiplier

13
Q

how do you get DEM

A

1/RRR

14
Q

discount rate changes every

A

6 months

15
Q

required reserve ration changes every

A

25 years

16
Q

3 tools of monetary policy

A
  1. required reserve ratio
  2. discount rate
  3. open market operations
17
Q

to increase MS, you have to ___ RRR

A

lower

18
Q

to decrease MS, you have to ____ RRR

A

raise

19
Q

the interest rate the fed charges member banks to borrow money

A

discount rate

20
Q

to increase MS, you have to ___ discount rate

A

lower

21
Q

to decrease MS, you have to ___ discount rate

A

raise

22
Q

the buy-ing and selling of government bonds by the fed

A

open market operations

23
Q

to increase MS, the fed has to

A

buy bonds

24
Q

to decrease MS, the fed has to

A

sell bonds

25
Q

equation of exchange is also known as

A

quantity theory of money

26
Q

equation of exchange

A

MV= PQ = nominal GDP

27
Q

M means

A

money supply (m1)

28
Q

V means

A

velocity

29
Q

what is velocity

A

how many times in a year a dollar gets spent on average`

30
Q

P means

A

Price level

31
Q

Q means

A

Quantity of real output (real GDP)

32
Q

MV =

A

total spending in the economy

33
Q

PQ =

A

total income in the economy

34
Q

total spending has to equal

A

total income

35
Q

a rise in the general price level

A

inflation

36
Q

the ONLY cause of inflation is

A

the money supply increasing faster than real output

(“too much money chasing too few goods)”

37
Q

real interest rate + inflation rate=

A

nominal interest rate

38
Q

fisher equation

A

/\M + /\v = /\P + /\Q