Macroeconomics

Monetary neutrality:

See neutrality of money.

Monetary policy:

The central bank’s choice re-

garding the supply of money.

Monetary transmission mechanism:

The pro-

cess by which changes in the money supply influ-

ence the amount that households and firms wish to

spend on goods and services.

Monetary union:

A group of economies that have

decided to share a common currency and thus a

common monetary policy.

Money:

The stock of assets used for transactions.

(Cf. commodity money, fiat money.)

Money demand function:

A function showing

the determinants of the demand for real money bal-

ances; for example, (M/P)

d

 L(i, Y ).

Money multiplier:

The increase in the money

supply resulting from a one-dollar increase in the

monetary base.

Moral hazard:

The possibility of dishonest behav-

ior in situations in which behavior is imperfectly

monitored; for example, in efficiency-wage theory,

the possibility that low-wage workers may shirk their

responsibilities and risk getting caught and fired.

Multiplier:

See government-purchases multiplier,

money multiplier, or tax multiplier.