Monetary Policy

Question 1

Money Supply

Answer 1

The quantity of money available in the economy.

Question 2

Money

Answer 2

Anything that serves as a medium of exchange, a unit of account, and a store of value.

Question 3

Central Bank

Answer 3

An institution designed to oversee the banking system and regulate the quantity of money in the economy.

Question 4

Central Bank Reserves

Answer 4

Money held by the central bank and used by commercial banks to make payments between themselves.

Question 5

Monetary Policy Controls

Answer 5

1) interest rates
2) exchange rates
3) money supply

Question 6

Interest Rates

Answer 6

The cost of borrowing money.

Question 7

Exchange Rate

Answer 7

The measure of how much one currency is worth in relation to another.

Question 8

Expansionary Monetary Policy

Answer 8

Monetary policy that increases aggregate demand.

Question 9

Monetary Policy

Answer 9

A policy created by the Federal Reserve in order to control the money supply to help adjust inflation and unemployment.

Question 10

Contractionary Monetary Policy

Answer 10

Monetary policy that reduces aggregate demand.

Question 11

Monetary policy tools the central banks can use

Answer 11

1)Change in reserve requirements
2)Change in the discount rate
3)Open market transactions

Question 12

Monetary policy tools the central banks can use

Answer 12

1)Change in reserve requirements
2)Change in the discount rate
3)Open market transactions

Question 13

Consumption

Answer 13

Spending by households on goods and services, with the exception of purchases of new housing.

Question 14

Savers

Answer 14

Persons who desire to conserve their monetary funds to the best of their ability.

Question 15

Discount Rate

Answer 15

The interest rate on the loans that the Fed makes to banks.

Question 16

Open Market Transactions

Answer 16

The buying and selling of government bonds by the central bank to control the money supply and interest rate.

Question 17

Appreciation vs. Depreciation

Answer 17

Every asset you possess will either appreciate or depreciate over time. In a nutshell, appreciation occurs when your asset gains value of any kind. Depreciation, on the other hand, refers to the decrease in value.

Question 18

Business Cycle

Answer 18

Fluctuations in economic activity, such as employment and production.

Question 19

Capital Stock

Answer 19

The total amount of physical capital available in a country or the machines available.

Question 20

Depreciation of Domestic Currency

Answer 20

Lowers the expected rate of return on foreign currency deposits. Will lessen imports.

Question 21

Expected Rate of Inflation

Answer 21

The rate of inflation that employers and workers expect in the near future.

Question 22

Higher Incomes Abroad

Answer 22

More foreign income and creates more aggregate demand. (More being exported from Domestic country).

Question 23

Increase in Expected Rate of Inflation

Answer 23

Will increase spending because the dollar will be less.

Question 24

Mandatory Reserves

Answer 24

Reserve Ratio * Deposit

Question 25

Real Interest Rate

Answer 25

The interest rate adjusted for inflation.

Question 26

Real Interest Rate Formula

Answer 26

Nominal Interest - Inflation Interest Rate.

Question 27

Real Wealth

Answer 27

Real Wealth Real wealth is the value of wealth adjusted for inflation or deflation.