ECO232 ch.4

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    What does the Monetary Policy Committee decide?

    Interest rate decisions impact the economy.

    Who is the current Reserve Bank Governor?

    Lesetja Kganyago holds the position.

    What is the current repo rate?

    The repo rate is 8.25%.

    How does money differ from wealth?

    Money is for transactions; wealth includes financial assets.

    What are the functions of money?

    Medium of exchange, unit of account, store of value.

    What happens in a barter economy if goods are not mutually desired?

    Trade becomes difficult without a common medium.

    What is M1 money?

    Includes currency, coins, and immediately available bank deposits.

    Why do people hold both money and bonds?

    To balance transaction needs and interest earnings.

    What influences the proportion of money held versus bonds?

    Transaction levels and interest rates determine the choice.

    What is speculative demand for money?

    Holding money based on expectations of interest rate changes.

    How does an increase in nominal income affect interest rates?

    It typically leads to higher interest rates.

    What happens when the central bank increases the money supply?

    Interest rates generally decrease as demand for money rises.

    What is the effect of contractionary open-market operations?

    Increases bond supply, decreases bond prices, raises interest rates.

    What is the role of the central bank in the money supply?

    Controls money supply through open-market transactions.

    What is the reserve requirement?

    Percentage of deposits banks must hold as reserves.

    How does the reserve requirement affect the money supply?

    Increasing it decreases the money supply; decreasing it increases it.

    What determines the interest rate in the money market?

    Supply and demand for central bank money set the rate.

    What is the money multiplier?

    Reflects how much money supply can increase from reserves.

    What happens if the central bank sells bonds?

    It decreases the money supply and raises interest rates.

    What is the relationship between money demand and interest rates?

    Demand for money decreases as interest rates increase.