Ch 16

Question 1

Monetary Policy

Answer 1

A central bank’s changing of the money supply to influence interest rates and assist the economy in achieving price stability, full employment, and economic growth

Question 2

Transactions Demand for Money

Answer 2

The demand for money as a medium of exchange

Question 3

Asset Demand for Money

Answer 3

To the extend that people wnat to hold money as an asset

Question 4

Total Demand for Money

Answer 4

Amount of money the public wants to hold, both for transactions and as an asset at each possible interest rate

Question 5

Open-Market Operations

Answer 5

consist of buying government bonds (U.S. Securities) from or selling government bonds to commercial banks and the general public

Question 6

Discount Rate

Answer 6

Interest rate charged by Federal Reserve Banks on loans they grant to commercial banks

Question 7

Reserve Ratio

Answer 7

sets the ability of comercial banks lending posibilities

Question 8

Term Auction Facility

Answer 8

The Fed holds two auctions each month at which banks bid for the right to borrow reserves for 28-day annd 84-days periods

Question 9

Federal Funds Rate

Answer 9

The interest rate banks and other depository institutions charge one another on overnight loans made out of their excess reserves

Question 10

Expansionary Monetary Policy

Answer 10

(Easy Money Policy) This will lower interest rate to bolster borrowing and spending, which will increase affrefate demand and expand real output

Question 11

Prime Interest Rate

Answer 11

The benchmark interest rate used by banks as a reference point for a wide range of interest rates charged on loads to businesses and individuals

Question 12

Restrictive Monetary Policy

Answer 12

(Tight Money Policy) This policy will increase the interest rate to reduce borrowing and spending, which will curtail the exxpansion of aggregate demand and hold down price-level increases

Question 13

Taylor Rule

Answer 13

Assumes that the Fed has a 2% “Target Rate of Inflation” that it is willing to tolerate and that the FOMC Follows three rules whne setting its target fo rits Federal Funds Rate:

Question 14

Cyclical Asymmetry

Answer 14

The idea that monetary policy may be more successful in slowing expansions and controlling inflation than in extracting the economy from severe recession

Question 15

Liquidity Trap

Answer 15

A situation in a severe recession in which the Fed’s injection of additional reserves into the banking system has little or no additional positive impact on lending, borrowing, investment, or aggregate demand