ECON CH 11

Question 1

monetary policy

Answer 1

is the manipulation of MS by the Fed

Question 2

interest

Answer 2

is the price that borrowers pay to lenders for the use of their funds (savings)

Question 3

interest rate

Answer 3

also known as “the price of money” or the “opportunity cost of holding cash” and is calculated as the annual interest rate payment on a loan expressed as a % of the loan

Question 4

interest payment received per year/ amount of the loan X100

Answer 4

interest rate equation

Question 5

households and firms

Answer 5

the demand for money in the economy is the demand for M1 type of money (currency+deposits) by who

Question 6

liquidity

Answer 6

the demand for money in the economy is the demand for what

Question 7

transaction motive

Answer 7

people need liquidity to buy things (money)

Question 8

the speculation motive

Answer 8

people want their assets (wealth) to grow over time (bonus)

Question 9

trade-off

Answer 9

there is a —————between liquidity of money and the interest payments offered by interest-bearing securities (such as bonds)

Question 10

money demand

Answer 10

the relationship between interest rate and quantity of money demanded

Question 11

when interest rates are high

Answer 11

demand for bonds is likely to be high thus the quantity of MD is likely to be low

Question 12

when interest rates are low

Answer 12

demand for bonds is likely to be low thus the quantity of MD is likely to be high

Question 13

negative

Answer 13

there is a ——- relationship between interest rate and quantity of MD

Question 14

interest rate

Answer 14

the quantity of MD depends on what

Question 15

changes

Answer 15

the demand for money shifts when the total dollar volume of transactions does what

Question 16

total dollar volume of transactions

Answer 16

Y x P

Question 17

MD curve shifts to the right

Answer 17

when aggregate output (Y) rises, the total number of transactions rises, and the MD curve shifts to the ———-

Question 18

MD curve shifts to the right

Answer 18

when price level rises, most transactions costs more. thus MD curve shifts to the ——

Question 19

movement along the MD curve

Answer 19

change in interest rate does what to the MD curve

Question 20

1. production

2. overall price level

Answer 20

MD 2 shifters

Question 21

MD shift to left

Answer 21

recession Y and P both go down, MD?

Question 22

MD shift to right

Answer 22

expansion Y and P both go up, MD?

Question 23

MS goes up

Answer 23

interest rate goes down and production goes up..MS?

Question 24

MS goes down

Answer 24

interest rate goes up and production goes down.. MS?

Question 25

MS

Answer 25

what is a vertical line that shifts to the left/right as Fed wants to follow a certain policy

Question 26

lowers interest rate

Answer 26

an increase in the MS (shifts to right) does what to interest rate

Question 27

increases interest rate

Answer 27

a decrease in the MS (shifts to left) does what to interest rate

Question 28

raises the equilibrium interest rate

Answer 28

an increase in aggregate output (Y) shifts the MD curve up, which does what to the equilibrium interest rate

Question 29

raises the equilibrium interest rate

Answer 29

an increase in the price level ℗ shifts the MD curve up, which does what to the equilibrium interest rate

Question 30

expansionary (easy) monetary policy

Answer 30

refers to the Fed policies that expand the MS in an effort to stimulate the economy

Question 31

contractionary (tight) monetary policy

Answer 31

refers to the Fed policies that contract the MS in an effort to restrain the economy

Question 32

a decrease in the interest rate

Answer 32

what causes QD of money to increase

Question 33

ease monetary policy

Answer 33

a period of high unemployment, the Fed would most likely do what

Question 34

expand the money supply

Answer 34

when economists refer to the “easy” monetary policy, they mean that the Fed is taking actions that will