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Monetary Policy and Aggregate Demand definitions

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  • Monetary Policy
    Central bank actions that adjust money supply to influence interest rates and overall economic activity.
  • Aggregate Demand
    Total spending in an economy, including consumption, investment, government purchases, and net exports.
  • Interest Rate
    Cost of borrowing money, impacting consumer spending, business investment, and currency value.
  • Money Market
    Graphical representation of the equilibrium between money supply and money demand, with interest rate as the price.
  • Open Market Operations
    Federal Reserve transactions involving buying or selling securities to adjust the money supply.
  • Money Supply
    Total amount of currency available in the economy, determined by central bank policy.
  • Money Demand
    Desire for cash holdings, influenced by price level and real GDP, shifting with economic changes.
  • Equilibrium Interest Rate
    Point where money supply equals money demand, setting the prevailing cost of borrowing.
  • Price Level
    Average of current prices across the economy, serving as the y-axis on the aggregate demand graph.
  • Consumption
    Spending by households on goods and services, sensitive to changes in borrowing costs.
  • Investment
    Business expenditures on equipment and structures, often financed through loans affected by interest rates.
  • Net Exports
    Difference between exports and imports, influenced by currency value and interest rate changes.
  • Recession
    Period of reduced economic activity, often addressed by central bank actions to stimulate spending.
  • Aggregate Demand Curve
    Graph showing the relationship between price level and GDP demanded, shifting with underlying factors.
  • Market Equilibrium
    State where supply and demand balance, determining prevailing prices and quantities in economic models.