16

Question 1

What is monetary policy?

Answer 1

Actions the fed takes to manage the money supply and interest rates to pursue macroeconomic goals
Targets aggregate demand

Question 2

What is expansionary monetary policy?

Answer 2

increase money supply

Question 3

What is contractionary monetary policy?

Answer 3

decrease money supply

Question 4

What are the goals of monetary policy?

Answer 4

maximum employment, price/inflation stability
bail out banks

Question 5

What tools does the Fed use in monetary policy?

Answer 5

Open market operations
repurchase agreements
quantitative easing

Question 6

How does the Fed boost aggregate demand using open market operations?

Answer 6

buy and sell bonds
expand: buys bonds from banks, puts cash in their accounts. Buy bonds, demand increases, bonds price increase, lower interest rate
contract: sells bonds, withdraws money. sells bonds, demand decreases, lower interest

Question 7

How does the Fed boost aggregate demand using repo?

Answer 7

temporary open market purchase that adds liquid reserves to banking. Short term loan from fed to bank
Expand: repo, purchase severities from a financial institution (short loan from fed to bank w/ treasuries as collateral)
Contract: reverse repo, sale of securities to bank (reverse fed loan)

Question 8

How does the Fed boost aggregate demand using quantitative easing?

Answer 8

longer term government bonds

Question 9

What are some limitations to monetary policy?

Answer 9

hard to predict future, what if banks do not change their lending, will money borrowed be sat on or invested, only short run