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Money and Banking Exam 2
Terms in this set (17)
Nominal wage / price level
% change in real wages
% change in nominal wage - % change in price level
% change in price level is positive
% change in price level is negative
Short Run Aggregate Supply (SRAS) Assumptions
1. Nominal wages and prices other inputs are fixed
2. Prices of some outputs may be flexible and thus adjust faster than prices of inputs
the turnover rate of money ( the avg. # of times per year a dollar is spent in buying currently produced goods/services)
decreases in private expenditures that result from an increase in gov't expenditures thereby reducing the expansionary effects of increasing gov't expenditures
currency + reserves
∆ monetary base
∆ currency + ∆ reserves
What is the "dual mandate"?
1. price stability
2. maximum employment
Who provided the Fed w/ the dual mandate?
Congress through various legislations between 1933 and 1935
What two policy tools change the money multiplier?
Monetary Policy and Fiscal Policy
Explain how the Federal Reserve would have to change each of these tools to increase the money multiplier.
-Interest rate channel, wealth channel, exchange rate channel
-Changing tax rates, changing gov't expenditures
Discuss the types of expenditures that comprise investment expenditures (according to nat'l income accounting definition of investment)
a. new equipment/new buildings used by businesses
b. new residential housing
c. changes in business inventories
Explain how monetary policy could increase investment expenditures
A lower real interest rate results in an increase in (investment) expenditures.
Discuss the institutional factors that result in the Federal Reserve having a high degree of operational independence.
1. Length of terms
2. Source of Operating Funds
Discuss the ultimate constraint on the Federal Reserve's actions concerning monetary policies.
1. The US Cons. gives ultimate authority to govern the money creation process to Congress
2. Congress and President can change structure of the Fed Reserve System by enacting legislation
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