Macroeconomics Unit 3: Money and Banking

Key Concepts and Questions:

* The Fed can use monetary policy to manipulate aggregate demand.

* What is money?

* What is the Federal Reserve System?

* Money is created when banks create demand deposits as they extend loans.

* What are the tools of monetary policy?

* What forces determine the demand for money?

* The equilibrium of money supply and money demand determines interest rates.

* The investment demand curve provides the link between changes in the money market and changes in aggregate demand.

* In turn, changes in aggregate demand cause changes in the money market.

Terms and Topics:

* (Some old material has been included to emphasize its importance.)

Ø AS/AD model

Ø Economics goals

Ø C+I+G+X

Ø Fiscal policy (defined)

Ø Tools of fiscal policy

Ø Expansionary fiscal policy

Ø Contractionary fiscal policy

Ø Budget surplus

Ø Budget deficit

Ø Fiscal policy time lags

Ø Real GDP vs. nominal GDP

Ø Shape of AS

Ø Demand shock

* high inflation

Ø Supply shock

* high unemployment

Ø Stagflation

Ø Keynesian Cross

Ø What is money

Ø Functions of money

Ø Currency

Ø Demand deposits

Ø Time deposits

Ø M1, M2, M3

Ø Demand for money

* Transaction demand

* Asset demand

Ø Supply of money

Ø Determination of interest rates

Ø The Fed

Ø Boards of Governors

Ø Open market Committee

Ø Regional banks

Ø Pros and cons - the Fed's independence

Ø Structure of the Fed

Ø Functions/services of the Fed

Ø FDIC

Ø Goldsmiths

Ø Fractional reserve system

Ø Reserve accounts

Ø Reserve requirement

Ø Required reserves

Ø Excess reserves

Ø Creation of money

Ø The money multiplier

Ø Monetary policy (defined)

Ø Discount rate

Ø Open market operations

Ø Federal funds rate

Ø Margin requirement

Ø Easy money

Ø Tight money

Ø Expansionary policy

Ø Contractionary policy

Ø Liquidity

Ø Check clearing

Ø Monetary policy and the foreign sector

Ø Pros and cons of monetary policy