AP Economics Study Guide - where for a given period: M =...

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AP Economics Study Guide – January 29, 2008 Money – is anything that is commonly accepted as a means of payment for goods and services. M1 – is the sum of coin and paper money plus checking deposits and traveler’s checks. M2 – is M1 plus savings deposits, small time deposits (deposits less than $100,000 with a fixed  term of maturity such as CDs), money market mutual funds, and Eurodollar deposits (overnight,  dollar-dominated deposits in European banks). M3 – is M2 plus large time deposits, Eurodollar time deposits, and other less liquid assets. Money Multiplier =  1/ required reserve ratio.  The total amount of deposits resulting from an  initial deposit that is ultimately held as reserves is conveniently found using the  Money  Multiplier . MV=PQ:    is the equation of exchange is a definitional relation of multiplied terms: MV = PQ 
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Unformatted text preview: where for a given period: M = the quantity of the money in circulation V = the Velocity of money (how fast each unit of money is changing hands on average) PQ = money value of expenditures P = the price level Q = is an index of expenditures What increases the velocity of money? institutional change Monetary Policy: Monetary policy is the process by which the government, central bank, or monetary authority manages the supply of money, or trading in foreign exchange markets. Increase in M Rise in P Fall in value of M Decrease in M Fall in P Rise in value of M This relationship forms the basis of the monetary policy ....
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This note was uploaded on 10/19/2010 for the course ECON 201 taught by Professor Coomber during the Spring '08 term at Community College of Baltimore County.

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