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INCOME-PRICE MODEL: An economic model relating the price level (the price part) and real production (the income part) that is used to analyze business cycles, aggregate production, unemployment, inflation, stabilization policies, and related macroeconomic phenomena. The income-price model, inspired by the standard market model, captures the interaction between aggregate demand (the buyers) and short-run and long-run aggregate supply (the sellers).

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Lesson 20: Federal Reserve System | Unit 4: Monetary Policy Page: 14 of 20

Topic: Open Market Operations <=PAGE BACK | PAGE NEXT=>

Open market operations are the most important tool of monetary policy.
  • The Federal government budget deficit is financed by issuing or selling U.S. Treasury Securities, which are traded through the open market.
  • Banks, corporations, government agencies, pension funds and regular people are the buyers and sellers in this 'open market' for Treasury Securities.
  • Treasury Securities are low risk investments.

Two major players in the open market:

  • Commercial Banks: They use secure investments to ensure bank stability.
  • Federal Reserve: They buy and sell treasury securities with the expressed goal of manipulating bank reserves and the money supply.

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ELASTICITY DETERMINANTS

Three factors that affect the numerical value of the price elasticity of demand and the price elasticity of supply--availability of substitutes, time period of analysis, and proportion of budget. The price elasticities of demand and/or supply for a good can change if these determinants change. The first two determinants are important to both price elasticity of demand and price elasticity of supply, while the third relates specifically to the price elasticity of demand.

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PINK FADFLY
[What's This?]

Today, you are likely to spend a great deal of time driving to a factory outlet seeking to buy either an electric coffee pot with automatic shutoff or a brown leather attache case. Be on the lookout for bottles of barbeque sauce that act TOO innocent.
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This isn't me! What am I?

The standard "debt" notation I.O.U. does not mean "I owe you," but actually stands for "I owe unto..."
"When you play, play hard; when you work, don't play at all. "

-- Theodore Roosevelt, 26th US president

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