The role that money, banks, financial markets and the central bank play in a nations economy.
Stimulate economic activity through "Easier money" increase the availability of credit
Result in falling interest rates and Fed
A rising money supply
; / Money Supply
Development that boost aggregate expenditures for
goods and service
Suffers from excessive growth of expenditures and unacceptably high levels of inflation
Inflation
is a persistent or continuing increase in a nations general price level
When a nations money supply increase (excessive growth of aggregate expenditures) for a
sustained period at a substantially more rapid rate than the countrys capacity to expand output of
goods and services
Deflation
is a persistent or continuing decline in a nations general price level
several financial distress as indicated by high rates of farm, home, and business foreclosures
Stagnant or falling output, high unemployment, and
banks and businesses failed <>, the stock market crashed < >
Experience inflation than deflation < > [Inflation > Deflation]
Fear of deflation is due in part of the belief that monetary policy is more effective in fighting inflation than
in combating deflation.
Inflation targeting ( )
Monetary policy strategy in which a central bank specifics an explicit range within which it pledges to
maintain the rate of inflation
3. Interest Rates
Cost of borrowing (or the return from lending), expressed as a [percent per year.]
Real Interest Rate- Interest rate after adjusting nominal interest rate for expected inflation.
The Federal Reserve
Can alter short-term interest rates by influencing the availability of loans through banks.
Very limited ability to directly influence long-term interest rates.
3.2.1 Appreciation- an increase in value of one nations currency relative to another currency.
Cause:-
3.2.2 Depreciation- a decrease in value of one nations currency relative to another currency.
Cause:-