# Equation of exchange the formula indicating that the

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Equation of exchange The formula indicating that the number of monetary units (Ms) times the number of times each unit is spent on final goods and services (V) is identical to the price level (P) times real GDP (Y). Income velocity of money (V) The number of times per year a dollar is spent on final goods and services; identically equal to nominal GDP divided by the money supply. Quantity theory of money and prices The hypothesis that changes in the money supply lead to equiproportional changes in the price level.
ECO201 Terminology Federal funds market A private market (made up of mostly banks) in which banks can borrow reserves from other banks that want to lend them. Federal funds are usually lent for overnight use. Federal funds rate The interest rate that depository institutions pay to borrow reserves in the interbank federal funds market. Discount rate The interest rate the Federal Reserve charges for reserves that it lends to depository institutions. It is sometimes referred to as the rediscount rate or, in Canada and England, as the bank rate. FOMC Directive A document that summarizes the Federal Open Market Committee’s general policy strategy, establishes near-term objectives for the federal funds rate, and specifies target ranges for money supply and growth. Trading Desk An office at the Federal Reserve Bank of New York charged with implementing monetary policy strategies developed by the Federal Open Market Committee. Taylor rule An equation that specifies federal funds rate target based on an estimated long-run real interest rate, the current deviation of the actual inflation rate from the Federal Reserve’s inflation objective, and the gap between actual real GDP and a measure of potential real GDP per year. Credit policy Federal Reserve policymaking involving direct lending to financial and nonfinancial firms. 362 final page. Directions : Define each of the terms below and evaluate the significance of each term to the topics presented within the textbook. Chapter 32 Term Definition Significance Comparative advantage (706) The ability to produce a good or service at a lower opportunity cost than other producers. Infant industry argument (713) The contention that tariffs should be imposed to protect from import competition an industry that is trying to get started. Presumably, after the industry becomes technologically efficient, the tariff can be lifted. Dumping (713) Selling a good or service abroad below the price charged in the home
ECO201 Terminology market or at a price below its cost of production. Quota system (715) A government-imposed restriction on the quantity of a specific good that another country is allowed to sell in the US. In other words, quotas are restrictions on imports. These restrictions are usually applied to one or several specific countries. Voluntary restraint agreement (VRA) (716) An official agreement with another country that “voluntarily” restricts the quantity of its exports to the US. Voluntary import expansion (VIE) (716) An official agreement with another country that in which it agrees to import more from the US. General Agreement on Tariffs and Trade (GATT) (718) An international agreement established in 1947 to further world trade by reducing barriers and tariffs.