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3 Tutorials that teach Expansionary/Contractionary Policy and the Multiplier Effect
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Expansionary/Contractionary Policy and the Multiplier Effect

Expansionary/Contractionary Policy and the Multiplier Effect

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Author: Colton Cranston
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This lesson covers the Expansionary/Contractionary Policy and the Multiplier Effect
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Tutorial

Notes on "Expansionary/Contractionary Policy and the Multiplier Effect"

Key Terms

  • Money Multiplier
  • The increase in the money supply resulting from the ability of banks to loan deposits; the value is equal to the reciprocal of the prevailing reserve ratio or 1/R, where R is the reserve ratio.
  • Reserves
  • A portion of deposits required to be held by a bank; reserves usually are kept to maintain reserve requirements, as set by the Fed.
  • Reserve Requirement
  • The required amount of depository liabilities as set by the Fed that a bank must hold, typically quoted as a percentage.
  • Fed Funds Target Rate
  • The rate that Fed member banks charge other member banks for overnight loans—typically made to meet reserve requirements.
  • Open-Market Operations
  • One of the mechanisms available to the Fed to regulate interest rates and the money supply; open market operation refer to the purchase and sale of U.S. Treasury securities.
  • Discount (window) Rate
  • The rate the Fed charges member banks for short-term loans to meet temporary liquidity needs.
  • Expansionary Policy
  • Either monetary or fiscal policy that is enacted to stimulate economic growth (as measured by the GDP growth rate).
  • Contractionary Policy
  • Either monetary or fiscal policy that is enacted to slow economic growth (as measured by the GDP growth rate).
  • Monetary Policy
  • Typically policy set by a central banking authority, whereby money supply access and the resulting cost or access to money (interest rate) is varied to assist in stabilizing economic activity.