AP Macro Unit 5 Flashcards
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| 12749898132 | demand for money | inverse relationship between nominal interest rates and the quantity of money demanded | 0 | |
| 12749904107 | Money demand shifters | 1.Changes in price level 2.Changes in the economy 3.Changes in taxation that affects investment | 1 | |
| 12749985690 | Money supply graph | If money supply increases then interest rates will fall creating a temporary surplus of money at 5% |  | 2 |
| 12750013463 | What happens when you increase money supply? | ->Decrease interest rates -> Increase investment -> Increase AD | 3 | |
| 12750023757 | 3 types of money demand | 1.Transactions- purchases of goods + services 2.Precautionary- protection against unexpected 3.Speculative- store for wealth (stocks/pension) | 4 | |
| 12750049862 | The money demand curve |  | 5 | |
| 12750060046 | money neutrality | changes in the money supply have no real effect on the economy in the long run | 6 | |
| 12750069987 | Jobs of the Fed | 1. Control the reserve requirement 2. Use open market operations (bonds) 3. Control the discount window | 7 | |
| 12750087979 | To increase the money supply the FED should... | -decrease the discount rate -buy bonds/securities | 8 | |
| 12750104102 | loanable funds market | brings together those who want to borrow w/ those who want to lend | 9 | |
| 12750108221 | loanable funds graph | demand= borrowers, supply= savers |  | 10 |
| 12750127996 | Shifters for loanable funds graph (demand) | 1. Changes in perceived business opportunity 2. Changes in govt borrowing (Budget deficit/surplus) | 11 | |
| 12750130275 | Shifters for loanable funds graph (supply) | 1. Changes in private savings behavior 2. Changes in public savings 3. Changes in foreign investment 4. Changes in expected profitability | 12 | |
| 12750158811 | Ex. Govt increases deficit spending (loanable funds) | D-borrowers will shift right because govt will be borrowing from private sectors, increasing demand for loans | 13 | |
| 12750172657 | Fisher effect | an increase in expected future inflation drives up the nominal interest rate, leaving the expected real interest rate unchanged | 14 | |
| 12750321713 | fiscal policy | Congress} Increase/decrease taxes and govt spending | 15 | |
| 12750333776 | monetary policy | FED} reserve requirement/open market operations /discount window | 16 | |
| 12750357254 | 4 problems with fiscal policy | 1. Timing Lags 2. Politically motivated policies 3. Crowding Out Effect 4. Net export effect | 17 | |
| 12750368871 | crowding-out effect | occurs when a government deficit drives up the interest rate and leads to reduced investment spending | 18 | |
| 12750395428 | Interest rate effect | -When the price level increases, lenders need to charge higher interest rates to get a REAL return on their loans. -Higher interest rates discourage consumer spending and business investment. | 19 | |
| 12750407544 | Duel Mandate | keep inflation and unemployment low by keeping interest rate low | 20 | |
| 12750415722 | Taylor rule | 1+ (1.5 x inflation rate)+ (.5 x output gap) This rule has lag though and doesn't adjust for inflation | 21 | |
| 12750430078 | output gap | real GDP - potential GDP | 22 | |
| 12750446523 | nominal interest rate | the interest rate as usually reported without a correction for the effects of inflation | 23 | |
| 12750449872 | real interest rate | the interest rate corrected for the effects of inflation | 24 | |
| 12750098456 | real interest rate equation | real interest rate = nominal interest rate - (expected)inflation rate | 25 |