Chapter 29 Flashcards
What happens to interest rates with a contractionary policy
Interest rates rise
When the Fed sells bonds a contractionary monetary policy what happens to the supply of money?
The supply of money decreases. Therefore the money supply curve shifts to the left.
What happens to the amount of money in circulation when the Fed sells bonds?
The amount of money in circulation in the economy decreases
When the amount of money in in circulation in the economy decreases what happens to the interest-rate?
It drives the interest rate up
When the amount of money in circulation in the aunt Connie me decreases and the interest rate goes up do businesses invest more or less in capital improvements?
Less
When the economy is in a recessionary gap the federal government can intervene in an effort to move the economy more quickly back to its potential out so output if so the federal government will do what to the money supply?
Increase the money supply which will decrease the interest-rate thereby giving firms incentive to increased investment which shift the A.D. curve to the right
Because velocity is assumed to be constant the percentage increase in the price level is …
The same as the percentage increase in the money supply this illustrates the quantity theory of money
What happens to the velocity of money when people have higher money balances?
The velocity of money tends to decrease
Which would cause a decrease in velocity of money
A decrease in the availability of automatic teller machine’s a decrease in the availability and acceptance of credit cards and a decrease in the frequency with which workers are paid
In the late 1900s the velocity of M1 did what?
Increased faster than the velocity of M2
Investment response to changes in what
Changes in interest rate
The government securities purchased by the federal reserve for quantitative easing the have a _____ term than the government bonds the federal purchases in normal open-market operations?
Shorter term
Quantitative easing is an example of what type of monetary policy?
Unconventional monetary policy
When is quantitative easing you usually used?
When federal funds rate is near a zero
