Chapter 13

Question 1

why does the central bank sustain low and steady inflation

Answer 1

Inflation:
• Creates uncertainty and difficulty in planning for the
future
• Lowers economic growth
• Strains social fabric

Question 2

Goals of monetary policy

Answer 2

-High employment
-Economic growth
-Stability of financial
markets
-Interest-rate stability
-Foreign exchange
market stability

Question 3

velocity

Answer 3

the rate at which money is exchanged in the economy

Question 4

how independent is the fed

Answer 4

Fed’s structure is written by Congress, and is subject to change
at any time.
• Presidential influence
• Influence on Congress
• Appoints members of the Board of Governors (more on
this later)
• Appoints chairman (although terms are not concurrent)

Question 5

Aggregate Demand

Answer 5

The relationship between the quantity of aggregate output demanded and the price level when all other variables are held constant

Question 6

Fed balance sheet

Answer 6

Liabilities: Currency + reserves
Assets: Government Securities, Discount loans,

Question 7

Tools of monetary policy

Answer 7

Open market operations
– Discount lending
– Changes in reserve requirements
– Changes of interest rate on reserves

Question 8

purpose of tools of monetary policy

Answer 8

Tools are used to manage or target the federal funds rate