Monetary Policy
The money multiplier equals:
1/reserve requirement.
An increase in the money supply designed to stimulate economic activity is called a(n) monetary policy.
Expansionary
By keeping interest rates high and investment and consumption spending low,:
contractionary monetary policy can help reduce the inflation rate.
The actions taken by a country's central bank to expand the money supply and lower interest rates is called:
expansionary monetary policy.
A decrease in the supply of money will cause the:
interest rate to rise and the quantity of investment demanded to fall.
With monetary policy changes in the:
money supply the quantity of investment demanded and Real GDP all move in the same direction.
Suppose the Federal Reserve has decided to increase the interest rate paid on reserves. As a result, the
money supply will decrease.
Money market equilibrium occurs where:
the money demand curve and the money supply curve intersect.
An economy experiences a change in excess reserves of $2 billion. If the money multiplier is 5, how much will the money supply change?
−$10 billion
demand describes the overall or total demand for all final goods and services produced in an economy.
Aggregate
If the Federal Reserve would like to increase the money supply, they should (increase/decrease) the interest rate paid on reserves.
Blank 1: decrease
A decrease in aggregate demand will cause the price level to and unemployment to in the short run.
Blank 1: decrease, fall, drop, or decline Blank 2: rise or increase
To minimize the effects of inflation, the Fed needs to the money supply.
Blank 1: decrease, lower, or drop
If consumers the amount of spending, the aggregate demand curve shifts to the left.
Blank 1: decrease, reduce, lower, or decline
Historically, during and in the immediate aftermath of recessions when the economy was still recovering, the Federal Reserve the federal funds rate. (Enter one word in the blank.)
Blank 1: decreased, lowered, reduced, decreases, lowers, or reduces
The price of money is the interest rate.
Blank 1: equilibrium
An increase in the money supply and a decrease in the interest rate are effects consistent with monetary policy.
Blank 1: expansionary
The Federal Reserve has decided to decrease the interest rate paid on reserves. This policy is consistent with monetary policy.
Blank 1: expansionary
A(n) in aggregate demand will cause the price level to rise and unemployment to fall in the short run.
Blank 1: increase or rise
Given the demand for money, a(n) in the money supply shifts the money supply curve and lowers the interest rate.
Blank 1: increase or rise
To decrease gross investment, the interest rate must
Blank 1: increase or rise
When aggregate demand rises, to avoid and return to the long-run equilibrium, we must decrease aggregate demand.
Blank 1: inflation
To minimize the effects of , the Fed needs to decrease the money supply.
Blank 1: inflation or recession
The equilibrium price of money is the rate.
Blank 1: interest
The negative relationship between the quantity of new physical capital demanded by firms and the prevailing interest rate describes demand.
Blank 1: investment
Governments use policy to keep prices stable and encourage economic growth.
Blank 1: monetary or fiscal
To minimize the effects of , the Fed needs to increase the money supply.
Blank 1: recession, contraction, recessions, or contraction
A reduction in the money supply designed to slow down economic activity is called monetary policy.
Contractionary
When the money supply increases, what happens to the interest rate and quantity of investment?
Interest rate decreases and quantity of investment increases.
To increase gross investment, the interest rate must:
decrease.
The demand and supply for money interact to determine the rate.
interest
The payment made to agents that lend or save money expressed as an annual percentage of the monetary amount lent or saved is called the __ rate.
interest
An increase in the supply of money will cause the:
interest rate to fall and the quantity of investment demanded to rise.
Changing the money supply can affect:
interest rates, thereby changing investment spending.
An increase in the money will cause the interest rate to fall.
supply
By changing the money , the Federal Reserve can influence real GDP.
supply
The Fed is another name for:
the Federal Reserve Bank.
A decrease in the money supply and an increase in the interest rate are effects consistent with monetary policy.
Contractionary
The actions taken by a country's central bank to contract the money supply and raise interest rates is called a(n) monetary policy.
Contractionary
monetary policy is sometimes referred to as "tight money."
Contractionary
policy affects interest rates charged on loans and paid on savings, thereby influencing the price of goods, services, and resources.
Monetary
policy affects interest rates charged on loans and paid on savings.
Monetary
policy is the actions of a country's central bank to influence the supply of money and credit in the economy.
Monetary
The market is a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances.
Money
Which of the following describes a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances?
Money market
Which of the following are also names for the interest rate?
The price of money The nominal interest rate
The money multiplier equals:
the overall change in the money supply/the initial change in reserves.
Referring to the graph, if the Fed wants to raise the interest rate to 12%, and the reserve requirement is 0.25, how much will reserves need to change?
$10 billion decrease
According to the Federal Reserve, the money supply will need to decrease by $25 billion to return the economy to full employment. If the money multiplier is 10, what will be the required change in excess reserves?
$2.5 billion
Why might expansionary policy not work during a recession?
Banks may choose not to make loans in a weak economy.
Referring to the graph, if the Fed has determined that the interest rates need to fall to 6% and the reserve requirement is 0.2, what will be the change in reserves necessary to change the money supply by the correct amount? $ billion
Blank 1: 4
With an MPC of 0.75, the expenditures multiplier will equal
Blank 1: 4 or four
With an MPC of 0.8, the expenditures multiplier will equal
Blank 1: 5 or five
Suppose the Federal Reserve wants to decrease the money supply by $400 billion. If the reserve requirement (rr) is 0.2, calculate the change in reserves that the Federal Reserve must make. $ billion (Do not include the $ sign in your answer.)
Blank 1: 80
When aggregate demand rises, to decrease aggregate demand, we can use a(n) monetary policy.
Blank 1: contractionary or tight
Monetary policy affects aggregate demand by changing the quantity of demanded in the economy.
Blank 1: investment or investments
Use a(n) -case i to represent interest rates and a(n) -case I for investment.
Blank 1: lower Blank 2: upper
Governments use to keep prices stable and encourage economic growth.
Blank 1: monetary Blank 2: policy or policies
By manipulating the money , the Federal Reserve can change rates ,thus encouraging or discouraging additional investment.
Blank 1: supply Blank 2: interest
The Federal Reserve can influence real GDP by changing the money which will influence gross .
Blank 1: supply Blank 2: investments or investment
What is the effect of contractionary monetary policy on the economy?
Decrease in real GDP and decrease inflation
Suppose the Federal Reserve plans to conduct expansionary monetary policy during a recession. Which of the following is a policy that would promote this decision?
Decrease the interest rate paid on reserves
Actions taken by a country's central bank to expand the money supply and lower interest rates with the objective of increasing real GDP and reducing unemployment is monetary policy.
Expansionary
The actions taken by a country's central bank to expand the money supply and lower interest rates is called monetary policy.
Expansionary
monetary policy is sometimes referred to as "easy money."
Expansionary
What is the effect of expansionary monetary policy on the economy?
Increase in real GDP and decrease in unemployment
Suppose the Federal Reserve plans to conduct contractionary monetary policy during a period of increasing inflation. Which of the following is a policy that would promote this decision?
Increase the interest rate paid on reserves
The payment made to agents that lend or save money expressed as an annual percentage of the monetary amount lent or saved is called the rate.
Interest
The rate is the payment made to agents that lend or save money, expressed as an annual percentage of the monetary amount lent or saved.
Interest
What is one benefit of contractionary monetary policy?
It combats inflation.
What is one benefit of expansionary monetary policy?
It reduces the size of recessions.
What happens to the money supply, real GDP, and investment demand with expansionary monetary policy?
Money supply increases, investment demand increases, and real GDP increases.
Which of the following is a monetary policy tool used by the Federal Reserve?
Paying interest on excess reserves
Suppose the Federal Reserve is planning to conduct expansionary monetary policy during a recession. Which of the following is a tool they may consider using?
Reducing the interest rate paid on excess reserves
When the change in needed reserves is negative, the Fed should bonds equal to the needed decrease in reserves.
Sell
How is a change in the money supply calculated when there is a change in excess reserves?
The change in the money supply equals a negative money multiplier (−1/rr) multiplied by the change in excess reserves.
Refer to the graph above. Suppose AD increases from AD1 to AD2. If the appropriate type of monetary policy is implemented, what is the effect on the interest rate and quantity of investment demanded?
The interest rate increases and the quantity of investment demanded decreases.
Suppose aggregate demand decreases, and the Federal Reserve decides to conduct expansionary monetary policy. How does this expansionary monetary policy affect the money market?
The money supply increases, thus decreasing the interest rate.
The Federal Reserve acts independently of the rest of the federal government. (True or False)
True
A money market is:
a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances.
When the equilibrium output is below potential output, the Fed should:
buy bonds equal to the needed decrease in reserves.
When aggregate demand rises too much to decrease aggregate demand, we can use monetary policy.
contractionary
In countering inflation,:
contractionary monetary policy can raise interest rates decrease gross investment and depress aggregate demand.
The Federal Reserve has decided to increase the interest rate paid on reserves. This policy is consistent with:
contractionary monetary policy.
Suppose that the economy is in a long-run equilibrium at a price level of 100 and full-employment real GDP of $500 billion. An expansion occurs resulting from a $50 billion increase in aggregate demand. In order to restore the economy to full employment given a MPC of 0.6, investment would need to:
decrease by $20 billion.
When aggregate demand falls, to increase aggregate demand, we can use monetary policy.
expansionary
By keeping interest rates low and investment and consumption spending high,:
expansionary monetary policy can help reduce the size of recessions.
In countering recession,:
expansionary monetary policy can lower interest rates increase gross investment and increase aggregate demand.
During the 1970s, inflation was:
high and the federal funds rate exceeded 16%.
Monetary policy primarily affects an economy by either encouraging or discouraging in new capital.
investment
The negative relationship between the quantity of new physical capital demanded by firms and the prevailing interest rate describes:
investment demand.
The interest rate:
is the price of money.
If consumers decrease the amount of spending, aggregate demand shifts to the
left
A market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances is called a(n) market
money
The point where the money demand curve and the money supply curve intersect is called:
money market equilibrium.
When aggregate demand falls, to avoid a(n) and return to the long-run equilibrium, we must increase aggregate demand.
recession
If an economy experiences a change in excess reserves, the change in money supply will also depend on
the money multiplier.
Investment demand can be described as:
the negative relationship between the quantity of new physical capital demanded by firms and the prevailing interest rate.
Expansionary policy may not be as effective during a recession because: (Choose all that apply)
the nominal interest rate is already at 0%. individuals may choose to save more rather than consume more. banks believe loans are too risky. businesses may choose not to invest.
The actions taken by a country's central bank to contract the money supply and raise interest rates is called:
tight money. contractionary monetary policy.
