Monetary Policy

Real Gross Domestic Product

A measure of the constant dollar value of all final goods and services produced in a country during a fixed period of time

Money Multiplier

The amount by which a one dollar change in reserves will change the money supply

Excess Reserves

The amount of reserves that a bank can lend out to earn interest; equal to total reserves minus required reserves

Required Reserves

The amount of reserves that a bank must keep on hand to meet regulatory requirements; equal to deposits times the reserve requirement

Spread

The difference between the interest rate a bank earns on a loan and the interest rate it pays

Federal Open Market Committee

A committee of the Federal Reserve System that is responsible for monetary policy decisions, specifically for open market operations for the Federal Reserve System. The FOMC consists of the Federal Reserve Board, the president of New York Fed, and 4 of the other 11 regional bank presidents

Money Market

A market in which the demand for and supply of money determine an interest rate, or opportunity cost of holding money balances

Aggregate Demand

A schedule or curve that represents the relationship between the quantity of real GDP demanded in the economy and the price level, all else held constant

Aggregate Supply

A schedule or curve that represents the relationship between the quantity of real GDP supplied in the economy and the price level

Contractionary monetary Policy

The actions taken by a country's central bank to contract the money supply and raise interest rates with the objective of decreasing real GDP and controlling inflation.

Expansionary Monetary Policy

The actions taken by a country's central bank to expand the money supply and lower interest rates with the objective of increasing real GDP and reducing unemployment.

Monetary Policy

The actions taken by a country's central bank to influence the supply of money and credit in the economy

Gross Investment

The dollar value of all new capital purchased and and the expansion of inventories in an economy during a given time period. It is categorized into business fixed, residential, and inventory

Reserve Requirement

The fraction of check-able deposits that banks must keep on hand as reserves, either as currency or on deposit with the Federal Reserve

Discount Rate

The interest rate at which banks can borrow money directly from the Federal Reserve

Federal Funds Rate

The interest rate that banks pay when borrowing reserves from other banks

Prime Rate

The lowest commercially available interest rate

Federal Funds Market

The market for borrowing and lending reserves between banks

Investment Demand

The negative relationship between the quantity of new physical capital demanded by firms and the prevailing interest rate

Interest Rate

The payment made to agents that lend or save money, expressed as an annualized percentage of the monetary amount lent or saved

Open Market Operations

The purchase or sale of government securities by a central bank; used to influence the money supply and interest rates