AP®︎ Macroeconomics: Topic 4.6 Flashcards

Central bank actions that change interest rates and money conditions to influence aggregate demand.

Actions that lower interest rates and increase money conditions to raise output and employment.

Actions that raise interest rates and tighten money conditions to reduce inflationary pressure.

Interest rate the central bank charges commercial banks for short-term loans.

Percentage of deposits banks must keep as reserves rather than lend out.

Administered rate the central bank pays banks on reserve balances they hold.

Limited reserves rely on reserve scarcity and money supply changes; ample reserves rely on administered interest rates.

Currency in circulation plus bank reserves held at the central bank.

The ratio showing how a reserve change can create a larger change in money supply.

In the money market, more money supply lowers nominal interest rates; less money supply raises them.

In the reserve market, reserve supply changes shift the equilibrium federal funds rate.

Monetary policy shifts aggregate demand, changing real output and the price level in the short run.

It changes nominal interest rates, aggregate demand, real output, and the price level.

Delays occur because policymakers must recognize problems and the economy adjusts slowly afterward.

Central bank bond purchases raise reserves and the monetary base, while sales reduce both.

The target overnight interbank lending rate used to conduct monetary policy in the United States.

Used in a recessionary gap to lower interest rates, increase spending, and shift aggregate demand right.

Used in an inflationary gap to raise interest rates, reduce spending, and shift aggregate demand left.