question
nominal interest rate
answer
real interest rate + inflation
question
money multiplier
answer
1/required reserve ratio
question
the savings of an economy is equal to
answer
investment spending
question
national savings
answer
private savings + budget balance
question
investment spending (open economy) is equal to
answer
national savings + capital inflow
question
investment spending (closed economy)
answer
national savings
question
capital inflow
answer
the net inflow of funds into a country
question
real quantity of money
answer
nominal money supply/price level
question
Shifters of the Money Demand Curve
answer
changes in aggregate price level, changes in real GDP, changes in technology, changes in institutions
question
Velocity of Money
answer
nominal GDP divided by the nominal quantity of money
question
an increase in the money supply leads to
answer
a decrease in the interest rate
question
a decrease in the interest rate leads to
answer
an increase in consumer and investment spending (Aggregate Demand)
question
a decrease in the interest rate causes bond prices to
answer
increase
question
a purchase/sale of bonds by the central bank leads to
answer
an increase/decrease in the money supply
question
a decrease in the discount rate leads to
answer
an increase in the money supply
question
the central bank can buy bonds to ___________ interest rates thus ________ the Federal Funds Rate
answer
decrease, increasing
question
Why might the money supply change be less than the maximum amount?
answer
either banks may choose to hold more than the required amount in their reserves or people choose not to deposit their money into checking accounts (leakage)
question
when the interest rate is below its equilibrium value
answer
the demand for interest-bearing assets increases and interest rates rise to meet the equilibrium value
question
when the interest rate is above its equilibrium value
answer
the demand for money increases and interest rates lower to meet the equilibrium value
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