1. Sides Games

2. Which M?
Just currency M0

3. Which M?
Currency
Check deposits (demand deposits) M1

4. Which M? Currency Check deposits (demand deposits) Savings deposits
Money markets M2

5. Type of $ in US (backed by NOTHING)
fiat

6. Money used to save for future
Medium of exchange
Store of value
Unit of account

7. Money used to buy stuff Medium of exchange Store of value
Unit of account

8. Money used to describe worth
Medium of exchange
Store of value
Unit of account

9. Double Coincidence of wants
barter

10. 25% RR
Money Multiplier? 4

11. Rate banks charge each other in the overnight market?
Federal funds rate

12. Rate Fed charges banks in the overnight market?
discount

13. Most used Fed tool? The term for the tool, not the 2 possible actions
Open market operations

14. Recession- Fed should increase MS

15. Inflation- Fed should decrease MS

16. Reserves, Money Supply, and Interest Rates
Fed buys bonds
Increase, increase, decrease

17. Money Supply
Fed raises RR
M1 decreases

18. Reserves, Money Supply, and Interest Rates
Fed sells bonds
Decrease, decrease, increase

19. Money Supply
Fed lowers RR
M1 increases

20. Reserves > Required Reserves
Excess reserves

21. Increase in M1 in short run should
AS/AD model
Increase AD (increases rGDP and PL)

22. Increase in M1 in long run should
Assuming an increase in “I”
AS/AD model
Increase LRAS due to increase in capital stock

23. Real Interest Rate is
Nominal Interest Rate – expected rate of inflation
Also
Nominal Interest Rate = Real Int + expected rate infl.

24. The nominal rate on the Money Market graph is really the ______
Federal funds rate

25. 3 expansionary policy moves
Buy bonds
Lower discount rate
Lower reserve requirement

26. 3 contractionary policy moves
Sell bonds
Increase discount rate
Increase reserve requirement

27. Fed bond selling causes interest rates to
increase

28. What is the opportunity cost for holding wealth as cash?
Interest
When one holds cash instead of putting money in an interest bearing account, the individual forgoes the interest earnings

29. If interest rates decrease, what will happen to the quantity of money people hold as cash? It will increase because there is less incentive to give up liquidity

30. The right side of a T-account (balance sheet) includes liabilities and
Owner’s equity

31. If interest rates go down, bond prices on the secondary markets will go
Increase (sell at a premium)

32. Stock versus Bond- difference?

33. Fed OMO of security selling
Price Level?
Decrease
Because interest rates increase, investment spending decreases, AD decreases