gross domestic product (GDP)
the output of goods and services in an economy
inflation
occurs when a rise or increase in the price of goods or services is not offset by increases in the quality of those goods and services
fiscal policy
involves setting the annual national budget and reflects government influence on economic activity through taxation and expenditure plans
monetizing the debt
the Fed buys government securities, financing some of the deficit and providing additional reserves to the banking system, thus increasing the money supply
automatic stabilizers
federal government programs that act on a continuing basis to stabilize disposable income and economic activity in general
transfer payments
income payments for which no current productive services is rendered
tax policy
sets the level and structure of taxes to affect the economy
deficit financing
affects the monetary and banking system when the spending rate is faster than the collection of taxes and other funds
crowding out
lack of funds for private borrowing caused by the sale of government obligations to cover large federal deficits
national debt
total debt owed by a government
debt management
includes determining the types of refunding to carry out, the types of securities to sell, the interest rate patterns to use, and decisions to make on callable issues
fractional reserve system
reserves held with the Fed that are equal to a certain percentage of bank deposits
primary deposit
the deposit of a check drawn on the Fed; it adds new reserves to the bank where deposited and to the banking system
derivative deposit
occurs when reserves created from a primary deposit are made available to borrowers through bank loans
bank reserves
reserve balances and vault cash used to meet reserve requirements
required reserves
the minimum amount of total reserves that a depository institution must hold
required reserves ratio
the percentage of deposits that must be held as reserves
excess reserves
the amount by which total reserves exceed required reserves
deficit reserves
the amount by which required reserves are larger than total reserves of an institution
Federal Reserve float
temporary increase in bank reserves that results when checks are credited to the reserve account of the depositing bank before they are debited from the account of the banks on which they are drawn
monetary base (MB)
banking system reserves plus currency held by the public
money multiplier (m)
number of times the monetary base can be expanded or magnified to produce a given money supply level
velocity of money
the average number of times each dollar is spent on purchases of goods and services and is calculated
as nominal GDP (GDP in current dollars) divided by M1
gross domestic product (GDP)
the output of goods and services in an economy
inflation
occurs when a rise or increase in the price of goods or services is not offset by increases in the quality of those goods and services
fiscal policy
involves setting the annual national budget and reflects government influence on economic activity through taxation and expenditure plans
monetizing the debt
the Fed buys government securities, financing some of the deficit and providing additional reserves to the banking system, thus increasing the money supply
automatic stabilizers
federal government programs that act on a continuing basis to stabilize disposable income and economic activity in general
transfer payments
income payments for which no current productive services is rendered
tax policy
sets the level and structure of taxes to affect the economy
deficit financing
affects the monetary and banking system when the spending rate is faster than the collection of taxes and other funds
crowding out
lack of funds for private borrowing caused by the sale of government obligations to cover large federal deficits
national debt
total debt owed by a government
debt management
includes determining the types of refunding to carry out, the types of securities to sell, the interest rate patterns to use, and decisions to make on callable issues
fractional reserve system
reserves held with the Fed that are equal to a certain percentage of bank deposits
primary deposit
the deposit of a check drawn on the Fed; it adds new reserves to the bank where deposited and to the banking system
derivative deposit
occurs when reserves created from a primary deposit are made available to borrowers through bank loans
bank reserves
reserve balances and vault cash used to meet reserve requirements
required reserves
the minimum amount of total reserves that a depository institution must hold
required reserves ratio
the percentage of deposits that must be held as reserves
excess reserves
the amount by which total reserves exceed required reserves
deficit reserves
the amount by which required reserves are larger than total reserves of an institution
Federal Reserve float
temporary increase in bank reserves that results when checks are credited to the reserve account of the depositing bank before they are debited from the account of the banks on which they are drawn
monetary base (MB)
banking system reserves plus currency held by the public
money multiplier (m)
number of times the monetary base can be expanded or magnified to produce a given money supply level
velocity of money
the average number of times each dollar is spent on purchases of goods and services and is calculated
as nominal GDP (GDP in current dollars) divided by M1