3.7

What is a bond?

A bond is an IOU issued by the government or a corporation, which borrows money from the buyer of the bond; The bond will be paid back in the future, with interest.

What is money?

Money is any "medium" that is generally accepted to use as payment for goods and services.

How does the Fed use the discount rate to decrease the money supply?

When the Fed increases the discount rate, banks will borrow less money and have less to loan out. This decreases the money supply and the interest rate increases.

Why is bartering a difficult system for exchanging goods and services? Explain.

because of the requirement of a double coincidence of wants. Whereas both parties must want what the other is offering.

To increase the money supply, the Fed will _____________ (buy/sell) bonds.

buy

When a country is experiencing a recession, the Fed might: ___________________ (buy/sell) bonds.

buy

When a country is experiencing a recession, the Fed might: ______________ (increase/decrease) the reserve requirement.

decrease

When a country is experiencing a recession, the Fed might: _____________ (increase/decrease) the discount rate.

decrease_

Contractionary monetary policy involves _____________________ (increasing/decreasing) the supply of money in an economy.

decreasing

How does expansionary monetary policy affect the interest rate? (increases/decreases)

decreasing it.

When a country is experiencing inflation, the Fed might: ______________ (increase/decrease) the reserve requirement.

increase

Expansionary monetary policy involves _____________________ (increasing/decreasing) the supply of money in an economy.

increasing

How does contractionary monetary policy affect the interest rate? (increases/decreases)

increasing it

Contractionary monetary policy should be used to solve which economic problem? (recession/inflation)

inflation

What is the discount rate?

is the rate the Fed charges to banks for short-term (overnight) loans.

Expansionary monetary policy leads to __________________ (more/less) borrowing and spending. This causes output to __________________(increase/decrease) and unemployment to _________________ (increase/decrease).

more increases increases

Expansionary monetary policy should be used to solve which economic problem? (recession/inflation)

recession

What is the organization that controls the supply of money in the United States?

the Federal Reserve Bank or the Fed.

When a country is experiencing inflation, the Fed might: ______________ (increase/decrease) the discount rate.

increase

Contractionary monetary policy leads to ___________________ (more/less) borrowing and spending. This causes output to __________________(increase/decrease) and price levels to _________________ (increase/decrease).

less decrease decrease

When the Fed increases the reserve requirement ratio, banks will lend out ______________ (more/less) money, which causes the money supply to _____________ (increase/decrease).

more decrease_

To decrease the money supply, the Fed will ______________(buy/sell) bonds.

sell

When a country is experiencing inflation, the Fed might: ______________ (buy/sell) bonds.

sell