Ch. 16 AP Macroeconomics (Interest Rates and Monetary Policy)

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Ben Bernanke

Current chairman of the Federal Reserve System. Replaced Alan Greenspan in 2006.

Federal Reserve Board

The 7 member board that helps set monetary policy (by controlling interest rates)

Federal Open Market Committee

The 12 member committee that

Interest Rates

The price paid for the use of money, or the price that borrowers pay to lenders for purchasing power in the future. Denoted by i(e)

Transactions Demand

Along with asset demand this determines the overall demand for interest rates(they are added horizontally). Specifically it is the demand for money as a medium of exchange. The level of NOMINAL GDP helps determine it. Makes a vertical line

Asset Demand

Along with transactions demand this determines the overall demand for interest rates. Specifically it is the extent to which people want to hold their money.

capital loss

The difference between a lower selling price and a higher purchase price resulting in a financial loss for the seller. Like when the price of a bond falls and it offsets the interest on receiving the bond.

Total Demand for money

Denoted, D(m), Is the total amount of money the public wants to hold. Is also the sum of transaction demand and asset demand(horizontally added).

Equilibrium Interest Rate

In economic rems, the interest rate at which the amount of money demanded(asset demand + transactions demand) is equal to the supply of money.

Supply of Money

The stock of money available in the economy at a particular time, a perfectly inelastic vertical line. This is how Fed controls interest rates.

Bond Prices

Interest rates and ___________ are inversely related.

Treasury bonds

...

Treasury notes

...

Treasury bills

...

Flickr Creative Commons Images

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