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14 terms

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

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

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