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Monetary policy refers to the actions the |
Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives |
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What are the Federal Reserve’s four goals of monetary policy |
price stability, high employment, economic growth, and stability of financial markets |
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The Federal Reserve’s two main monetary policy targets are |
Money Supply and interest rates |
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Why does the money demand curve have a negative slope |
because an increase in the interest rate decreases the quantity of money demanded |
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An increase in the interest rate |
increases the opportunity cost of holding money, and a movement up along the money demand curve |
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An increase in the price level causes |
The money demand curve to shift to the left |
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What would cause the money demand curve to shift to the left |
A decrease in real GDP |
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Using the money demand and money supply model, an open market PURCHASE of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to |
decrease |
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An increase in real GDP can shift |
money demand to the right and increase the equilibrium interest rate |
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when the price of a financial asset falls, its interest rate will |
rise |
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Expansionary monetary policy refers to the ______ to increase real GDP |
Federal Reserve’s increasing the money supply and decreasing interest rates |
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What is expansionary monetary policy? |
Federal reserve buys bonds to increase money supply and decrease interest rates |
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What is contractionary monetary policy? |
Federal reserve sells bonds to decrease money supply and increase interest rates |
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If the fed lowers its target for the federal funds rate, this means |
The fed is pursuing an expansionary monetary policy |
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