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Jeopardy!
Money Interest Rates
Open Market Operations
Hodge Podge
Supply & Demand for Money
Alex Trabeconomics
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The three functions of money.
Medium of exchangeUnit of accountStore of Value
This includes cash coins and checkable deposits
M1
This includes cash coins and checkable deposits
along with savings accounts and money
market mutual funds.
M2
The portion of a deposit that banks are required to
keep on hand.
Required reserve.
The quantity of money will only reach its theoretical
limit if both of these things happen.
Banks lend all excess reserves and all cash is deposited into banks
.
The “price” of money as seen in a money market
model.
Interest rates
The interest rate the Fed charges to member banks
for loans
Discount Rate
The interest rate that banks charge to each
other for overnight loans.
Federal funds rate
Why does holding on to cash cost a person
money?
Cash pays no interest
How is the real rate of interest found?
Nominal interest minus rate of inflation.
The Fed’s buying and selling of bonds
Open market operations
When the Fed engages in open market operations it targets this interest rate
The Federal Funds Rate
If the fed buys bonds interest rates will do this
Fall
Assume a bond with a coupon of $1000 cost you $800 and it matures one year from today. What interest rate does the
bond pay?
25%
The Federal Reserve Bank launches a plan to buy
billions of dollars worth of bonds. A monetarist would criticize this by suggesting
it will only lead to this problem.
Inflation
Fed policy of changing the equilibrium of the money
market to maintain economic stability
Monetary policy
The number of times the average dollar moves
through transactions in a given period of time.
Velocity.
Another name for this equation
M x V = P x Y
Equation of Exchange
He is the chairman of the Federal Reserve Bank
Ben Bernanke
3 tools the Fed has to affect monetary policy
Open Market Operations, Discount Rate, and Reserve Requirement
The supply of money will change due to this
Any action by the Fed.
The demand for money will change when this
changes
An autonomous change in spending.
Increasing the reserve requirement will effect the
money supply in what way?
Decrease
If spending on nominal GDP increases how will the demand for
money be affected?
Increase
DAILY DOUBLE
A change in fed policy will immediately affect what
two things?
Quantity of money and interest rates
An additional dollar introduced into the economy is likely to be spent many times over. This phenomenon is best described by what key term?
The multiplier
This reduces the size of the multiplier
Inflation (Positive slope of supply curve)
GDP / I = ?
Multiplier
The Marginal Propensity to Consume is .8. What is the (oversimplified) multiplier?
5
The multiplier may be expressed as the equation that describes the sum of an infinite geometric progression. What is this equation?
Multiplier = 1/1-MPC
• The artist shown at right / All cash, coins, and checkable deposits.
EmineM1
• Percentage of deposits which banks must keep on hand / the dorky Dutch guy to the right stars in an advertisement for this candy – “The freshmaker”
Reserve Require-Mentos
• This organization sets monetary policy for the United States / DeSean Jackson is nursing an injured one of these.
Federal Reserve B-Ankle
• He’s the quarterback of the football team and a member of the glee club / The Y axis of the supply and demand for money.
Finnterest Rate.
DAILY DOUBLE!
• The Fed’s buying and selling of bonds / The “Flying Tomato” has earned two Olympic gold medals in snowboarding.
Open Market Opera-Shaun White
Final Jeopardy!
Find National Income when:C = 80 + .8(DI)I = 320G= 480
X-IM = -80Income Tax Rate = 25%
2000.
The average number
of times a dollar is spent /
He is Arsenal’s all-time
leading scorer and currently
plays for the Red Bulls
Veloci-Thierry Henry