Econ 201 Final O'Dea WI'17

checkable bank deposits

bank accounts on which people can write checks.

Bank failure

bank failure: the bank would be unable to pay off its depositors in full.

T-account

A T-account is a tool for analyzing a business's financial position by showing, in a single table, the business's assets (on the left) and liabilities (on the right)

Taylor rule (monetary policy)

A Taylor rule for monetary policy is a rule that sets the federal funds rate according to the level of the inflation rate and either the output gap or the unemployment rate.

Bank runs

A bank run is a phenomenon in which many of a bank's depositors try to withdraw their funds due to fears of a bank failure.

Central Bank

A central bank is an institution that oversees and regulates the banking system and controls the monetary base.

Commercial Bank

A commercial bank accepts deposits and is covered by deposit insurance

Medium of exchange

A medium of exchange is an asset that individuals acquire for the purpose of trading goods and services rather than for their own consumption.

Monetary Aggregate

A monetary aggregate is an overall measure of the money supply.

savings and loan (thrift)

A savings and loan (thrift) is another type of deposit-taking bank, usually specialized in issuing home loans.

Store of value

A store of value is a means of holding purchasing power over time.

Unit of Account

A unit of account is a measure used to set prices and make economic calculations.

classical model of the price level

According to the classical model of the price level, the real quantity of money is always at its long-run equilibrium level.

monetary neutrality

According to the concept of monetary neutrality, changes in the money supply have no real effects on the economy.

liquidity preference model of the interest rate

According to the liquidity preference model of the interest rate, the interest rate is determined by the supply and demand for money.

Demand Shock

An event that shifts the aggregate demand curve is a demand shock.

Investment bank

An investment bank trades in financial assets and is not covered by deposit insurance.

open-market operation

An open-market operation is a purchase or sale of government debt by the Fed.

Automatic Stabilizers

Automatic stabilizers are government spending and taxation rules that cause fiscal policy to be automatically expansionary when the economy contracts and automatically contractionary when the economy expands.

Bank reserves

Bank reserves are the currency banks hold in their vaults plus their deposits at the Federal Reserve.

Commodity Money

Commodity money is a good used as a medium of exchange that has intrinsic value in other uses.

Currency in circulation

Currency in circulation is cash held by the public.

Debt deflation

Debt deflation is the reduction in aggregate demand arising from the increase in the real burden of outstanding debt caused by deflation.

Deposit Insurance

Deposit insurance guarantees that a bank's depositors will be paid even if the bank can't come up with the funds, up to a maximum amount per account.

Discretionary Fiscal Policy

Discretionary fiscal policy is fiscal policy that is the result of deliberate actions by policy makers rather than rules.

Disposable income

Disposable income, the total income households have available to spend, is equal to the total income they receive from wages, dividends, interest, and rent, minus taxes, plus government transfers.

Excess reserves

Excess reserves are a bank's reserves over and above its required reserves.

Fiat money

Fiat money is a medium of exchange whose value derives entirely from its official status as a means of payment.

Implicit Liabilities

Implicit liabilities are spending promises made by governments that are effectively a debt despite the fact that they are not included in the usual debt statistics.

Inflation targeting

Inflation targeting occurs when the central bank sets an explicit target for the inflation rate and sets monetary policy in order to hit that target.

Lump-sum Taxes

Lump-sum taxes are taxes that don't depend on the taxpayer's income.

Money

Money is any asset that can easily be used to purchase goods and services.

Money's roles

Money plays three main roles in any modern economy: it is a medium of exchange, a store of value, and a unit of account.

Near-moneys

Near-moneys are financial assets that can't be directly used as a medium of exchange but can be readily converted into cash or checkable bank deposits.

Potential Output

Potential output is the level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible.

Public Debt

Public debt is government debt held by individuals and institutions outside the government.

Reserve requirements

Reserve requirements are rules set by the Federal Reserve that determine the minimum reserve ratio for banks.

Short-run macroeconomic equilibrium

Short-run macroeconomic equilibrium when the quantity of aggregate output supplied is equal to the quantity demanded.

Stabilization Policy

Stabilization policy is the use of government policy to reduce the severity of recessions and rein in excessively strong expansions.

Stagflation

Stagflation is the combination of inflation and falling aggregate output.

Sticky Wages

Sticky wages are nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages.

Aggregate Demand Curve

The aggregate demand curve shows the relationship between the aggregate price level and the quantity of aggregate output demanded by households, businesses, the government, and the rest of the world.

Cyclically adjusted budget balance

The cyclically adjusted budget balance is an estimate of what the budget balance would be if real GDP were exactly equal to potential output.

Debt to GDP Ratio

The debt-GDP ratio is the government's debt as a percentage of GDP

discount rate

The discount rate is the rate of interest the Fed charges on loans to banks

Discount window

The discount window is an arrangement in which the Federal Reserve stands ready to lend money to banks in trouble.

liquidity trap

The economy is in a liquidity trap when conventional monetary policy is ineffective, because nominal interest rates are up against the zero bound.

Self-correcting Economy

The economy is self-correcting when shocks to aggregate demand affect aggregate output in the short run, but not the long run.

federal funds market

The federal funds market allows banks that fall short of the reserve requirement to borrow funds from banks with excess reserves.

federal funds rate

The federal funds rate is the interest rate determined in the federal funds market.

Inflation tax

The inflation tax is the reduction in the value of money held by the public caused by inflation

Interest Rate Effect

The interest rate effect of a change in the aggregate price level is the effect on consumer spending and investment spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers' and firms' money holdings.

long-run Phillips curve

The long-run Phillips curve shows the relationship between unemployment and inflation after expectations of inflation have had time to adjust to experience.

Monetary Base

The monetary base is the sum of currency in circulation and bank reserves.

Money demand curve

The money demand curve shows the relationship between the interest rate and the quantity of money demanded.

Money multiplier

The money multiplier is the ratio of the money supply to the monetary base.

Money Supply

The money supply is the total value of financial assets in the economy that are considered money.

Nominal Wage

The nominal wage is the dollar amount of the wage paid.

NAIRU

The nonaccelerating inflation rate of unemployment, or NAIRU, is the unemployment rate at which inflation does not change over time.

Output Gap

The output gap is the percentage difference between actual aggregate output and potential output

Reserve ratio

The reserve ratio is the fraction of bank deposits that a bank holds as reserves.

short-run Phillips curve

The short-run Phillips curve is the negative short-run relationship between the unemployment rate and the inflation rate.

SRAS Curve

The short-run aggregate supply curve shows the relationship between the aggregate price level and the quantity of aggregate output supplied that exists in the short run, the time period when many production costs can be taken as fixed.

target federal funds rate

The target federal funds rate is the Federal Reserve's desired federal funds rate.

Social Insurance

The term social insurance is used to describe government programs that are intended to protect families against economic hardship. These include Social Security, Medicare and Medicaid as well as smaller programs such as unemployment insurance and food stamps.

The Wealth Effect

The wealth effect of a change in the aggregate price level is the effect on consumer spending caused by the effect of a change in the aggregate price level on the purchasing power of consumers' assets.

zero lower bound

The zero lower bound for interest rates means that interest rates cannot fall below zero.

Recessionary Gap

There is a recessionary gap when aggregate output is below potential output.

Inflationary Gap

There is an inflationary gap when aggregate output is above potential output.

Commodity-backed money

a medium of exchange with no intrinsic value whose ultimate value was guaranteed by a promise that it could always be converted into valuable goods on demand.

Multiplier

multiplier is the ratio of the change in real GDP caused by an autonomous change in aggregate spending to the size of that autonomous change

seignorage

revenue generated by the government's right to print money