CLEP Macro Economics

Open market purchase occurs when the federal reserve

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Open- Market Purchase – occurs when the Federal Reserve buys back government bonds form the public in order to increase bank reserves and money supply Open-Market Sales – occur when the Federal Reserve sells government bonds in order to decrease bank reserves and the money supply Open-Market Operations – the purchase or sale of government securities in the secondary market Are the easiest way for the Federal Reserve to affect the bank reserves and money supply of the nation FDIC – organization responsible for Deposit Insurance To guarantee depositors’ that they would not lose their money To increase the public’s confidence in the banking system A decrease demand for foreign goods will lead to a decrease in the supply of U.S dollars The money supply is equal to the total amount of currency held by the public plus the total amount of bank deposits Quantity Theory of Money – proposes that there is a positive, direct relationship between the quantity of money in an economy and the price level, so; if the amount of money in the economy triples so will the prices, thus resulting in inflation Entitlement Programs – government programs that guarantee benefits to all applicants that meet the criteria Example : Social Security, Medicare, food stamps Prime Rate – is the lowest interest rate the banks charge large, credit-worthy commercial borrowers for short term loans A o Absolute advantage: A country's ability to produce something using fewer resources (more cheaply) than other market participants use. o Aggregate demand (AD): Total real GDP demanded at different price levels during a particular period of time, ceteris paribus. o Aggregate demand (AD) curve: A line showing the total quantity of output (real GDP) demanded at alternative price levels in a given time period, ceteris paribus. o Aggregate demand management: Government intervention through policy to influence the level of aggregate spending in the economy. o Aggregate demand-aggregate supply model (AS/AD): A macroeconomic framework for analyzing real gross domestic product (GDP) and the total amount spent for final goods and services (price level) in an economy, including consumption, investment, government spending, and net exports. o Aggregate expenditures: The total amount spent for final goods and services in an economy including consumption, investment, government spending, and net exports. o Aggregate expenditures model: A perspective in macroeconomics founded on the premise that the amount of production and employment depends directly on the level of total spending.
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o Aggregate supply (AS): The total real GDP producers are willing and able to supply at different price levels during a particular period of time, ceteris paribus. o Aggregate supply curve: A curve diagram representing the total amount of real GDP that producers are willing and able to supply at different prices at a particular time. o
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Open Market Purchase occurs when the Federal Reserve buys...

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