ECON CH 12

Question 1

money market

Answer 1

is the market in which:

• financial instruments (cash, bonds, etc.) are exchanged
• the equilibrium level of the interest rate is determined

Question 2

monetary policy

Answer 2

is used to change the level of interest rate

Question 3

the goods and services market

Answer 3

is the market where:

• goods and services are exchanged
• equilibrium level of aggregate output (Y) is determined

Question 4

fiscal policy

Answer 4

is used to change the level of output (Y) and unemployment

Question 5

investment

Answer 5

the interest rate (determined in the money market) determines what

Question 6

investment functions

Answer 6

the inverse relationship between investment and interest rate

Question 7

expansionary fiscal policies

Answer 7

-an increase in gov spending
or
-reduction in net taxes
aimed at increase aggregate output (income)(Y) and lowering unemployment (u)

Question 8

expansionary monetary policies

Answer 8

is an increase in the money supply aimed at increasing aggregate output and lowing unemployment

Question 9

monetary policy

Answer 9

can only be effective only if investment changes when interest rate changes

Question 10

effectiveness of monetary policy

Answer 10

depends on the slope of the investment function

Question 11

monetary policy is ineffective

Answer 11

if interest functions is nearly vertical then little responsiveness of investment to interest rate

Question 12

contractionary fiscal policy

Answer 12

-a decrease in gov spending
or
-an increase in taxes
aimed at reducing inflation

Question 13

contractionary monetary policy

Answer 13

is an decrease in the money supply aimed at reducing inflation

Question 14

crowding out

Answer 14

the decrease in investment brought about by the increased interest rate

Question 15

1. the quantity of MS by fed

2. sensitivity of planned investment

Answer 15

the size of crowding out depends on 2 things