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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

Author: Dan Laub
Description:
This lesson covers the Expansionary/Contractionary Policy and the Multiplier Effect
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Tutorial

Notes for "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.