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 nursed an injured one of these last year.

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 numberof times a dollar is spent / He is Arsenal’s all-timeleading scorer and currentlyplays for the Red Bulls

Veloci-Thierry Henry