Economic, Banking help?

Monetary base -- Currency in ciculation + vault cash + reserves held at the fed

Multiplier -- 1/ reserves ratio

M1 -- money that can be imediately accessed....

-- currency + checking deposits + savings accounts

but not including CDs, Money Market funds and other forms of "near cash"

Velocity -- How many times does some from of money need to change hands to explain all of the activity in the economy.

by definition M*V = P*Y. P*Y is NGDP. so V = NGDP / Money

Money demand -- this one is a little bit screwballs... if you can lend your money at interest, why hold onto cash? Liquidity... you can't spend the money you have lent. risk aversion... the money you have lent may not be repaid. But as rates rise, you may be more willing to part with your money. But if expected investment returns are zero, money in hand is always better than money that is locked up in a low value investment. In the IS-LM model the interest rate is the mechanism that balances money demand to money supply.

Why do I think this is screwballs? If I put my money in the bank it is money to me (at least it is M1) but the bank can lend it out at interest. So, I can hold my money and the same money can be lent.

GDP in detail... what we are really looking at is the Federal Reserve decides that demand is below their target. They buy bonds.

1)This puts money onto bank balance sheets, increasing their reserves and the supply of money. Banks lend this money to their customers, who spend it, increasing demand. The people who receive the money that was spent this way, put some into the bank and spend some. This again creates money to be lent and goods and services demanded in the economy.

2) The federal reserve buying bonds pushes down interest rates. Lower interest rates may increase demand for loans -- the interest sensitivity of loan demand.

3) Lower rates increases "money demand."

net, at the margin the Central bank has a tool to stimulate or retard aggregate demand, that is faster, more responsive and less politicized than fiscal policy.