Economics Today The Macro View Ch. 16 Money, Stabilization, and Growth
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Economics Today The Macro View Ch. 16 Money, Stab
Institution
Economics Today The Macro View Ch. 16 Money, Stab
Economics Today The Macro View Ch. 16 Money,
Stabilization, and Growth
1. Money balances ️: Synonymous with money, money stock, money holdings.
2. Transactions demand ️: Holding money as a medium of exchange to make payments. The level
varies directly with nominal GDP.
3. Precautionar...
2. Transactions demand ✔️: Holding money as a medium of exchange to make payments. The level
varies directly with nominal GDP.
3. Precautionary demand ✔️: Holding money to meet unplanned expenditures and emergencies.
4. Asset demand ✔️: Holding money as a store of value instead of other assets such as corporate bonds
and stocks.
5. Quantitative easing ✔️: Federal Reserve open market purchases intended to generate an increase in
bank reserves at a nearly zero interest rate.
6. Equation of exchange ✔️: The formula indicating that the number of monetary units (Ms) times the
number of times each unit is spent on final goods and services (V) is identical to the price level (P) times
real GDP (Y).
,7. Income velocity of money (V) ✔️: The number of times per year a dollar is spent on final goods and
services; identically equal to nominal GDP divided by the money supply.
8. Quantity theory of money and prices ✔️: The hypothesis that changes in the money supply lead to
equiproportional changes in the price level.
9. Federal funds market ✔️: A private market (made up mostly of banks) in which banks can borrow
reserves from other banks that want to lend them. Federal funds are usually lent for overnight use.
10. Federal funds rate ✔️: The interest rate that depository institutions pay to borrow reserves in the
interbank federal funds market.
11. Discount rate ✔️: The interest rate that the Federal Reserve charges for reserves that it lends to
depository institutions.
12. FOMC Directive ✔️: A document that summarizes the Federal Open Market Committee's general
policy strategy, establishes near-term objectives for the federal funds rate, and specifies target ranges
for money supply growth.
,13. Trading Desk ✔️: An office at the Federal Reserve Bank of New York charged with implementing
monetary policy strategies developed by the Federal Open Market Committee.
14. Taylor rule ✔️: An equation that specifies a federal funds rate target based on an estimated long-
run real interest rate, the current deviation of the actual inflation rate from the Federal Reserve's
inflation objective, and the gap between actual real GDP per year and a measure of potential real GDP
per year.
15. Credit policy ✔️: Federal Reserve policymaking involving direct lending to financial and nonfinancial
firms.
### Multiple Choice and Problems:
16. Which of the following is not a reason people choose to hold money balances? ✔️: Money holdings
are good assets during periods of inflation.
17. The demand for money
A. is an upward sloping function of the interest rate.
B. is positively related to the opportunity cost of holding money.
C. is a downward sloping function of the interest rate.
, D. None of the above.
✔️: C. is a downward sloping function of the interest rate.
18. Your purchases are made with money holdings represented by
✔️: A. the transaction demand for money because you planned to buy the gift and the precautionary
demand for money because you did not anticipate buying the sweater.
19. Holding money as a medium of exchange to make payments is known as
✔️: A. transactions demand.
20. Which of the following is not a reason people choose to hold money balances?
✔️: D. Money holdings are good assets during periods of inflation.
21. Which of the following is an example of the asset demand for money?
✔️: C. Since the stock market has been volatile lately, Jean holds most of her savings in a bank
account.
### Bond Pricing Problems:
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