15 Monetary Policy

Question 1

management of interest rates and total supply of money in circulation

Answer 1

monetary policy

Question 2

government policy

Answer 2

monetary policy and fiscal policy

Question 3

stabilize overall level of output and price through money supply control

Answer 3

monetary policy

Question 4

collective term for taxing and spending actions of governments

Answer 4

fiscal policy

Question 5

stabilize economy through changes in gov’t spending/taxation

Answer 5

fiscal policy

Question 6

types of monetary and fiscal policy

Answer 6

expansionary and contractionary

Question 7

common thoughts about money

Answer 7

1. money is the root of all evil
2. time is money
3. money doesn’t grow on trees
4. when money talks, everybody listens

Question 8

functions of money

Answer 8

1. medium of exchange
2. unit of account (measure)
3. store of value

Question 9

value comes from commodity of which it is made, consists of objects that have value in themselves (intrinsic value) as well as value in their use as money

Answer 9

commodity money

Question 10

decreed by the gov’t and accepted by the people

Answer 10

fiat money

Question 11

another name for fiat money

Answer 11

legal tender

Question 12

medium of payment recognized by legal system to settle a financial obligation

Answer 12

fiat money

Question 13

depends for its value on condifence that it will be generally accepted as a medium of exchange

Answer 13

fiduciary money

Question 14

issuer promises bearer that it will be exchanged as requested

Answer 14

fiduciary money

Question 15

bouncing check/no sufficient fund check gives issuer a

Answer 15

penalty

Question 16

“I Owe You”

Answer 16

IOU

Question 17

debt instrument/certificate

Answer 17

IOU

Question 18

credit cards and debt cards

Answer 18

plastic money

Question 19

money that doesn’t need to be touched to be exchanged

Answer 19

digital money

Question 20

characteristics of money

Answer 20

1. durability
2. portability
3. divisibility
4. stability
5. acceptability

Question 21

↓ money supply

Answer 21

contractionary

Question 22

↑ interest rate

Answer 22

contractionary

Question 23

discourages investment spending

Answer 23

contractionary

Question 24

↓ overall demand

Answer 24

contractionary

Question 25

used when there is high inflation

Answer 25

contractionary

Question 26

↑ money supply

Answer 26

expansionary

Question 27

↓ interest rate

Answer 27

expansionary

Question 28

stimulates investment spending

Answer 28

expansionary

Question 29

↑ overall demand

Answer 29

expansionary

Question 30

cannot touch; funds that are always in the bank

Answer 30

reserve requirement

Question 31

↑ reserve requirement ↓ money in the economy

Answer 31

contractionary

Question 32

↓ reserve requirement ↑ money in the economy

Answer 32

expansionary

Question 33

people pay what to banks

Answer 33

interest rate

Question 34

what do banks pay to central banks

Answer 34

discount rate

Question 35

↓ discount rate ↑ loans

Answer 35

expansionary

Question 36

↑ discount rate ↓ loans

Answer 36

contractionary

Question 37

the gov’t borrows money from you; gives you a piece of paper in exchange

Answer 37

open-market operations

Question 38

certificate of debt from gov’t

Answer 38

bonds

Question 39

give you a lot of profit

Answer 39

bonds

Question 40

high interest rate

Answer 40

bonds

Question 41

has maturity (you can only get the funds after a certain amount of time)

Answer 41

bonds

Question 42

sell gov’t bonds

Answer 42

contractionary

Question 43

buy back gov’t bonds

Answer 43

expansionary