Economics Chapter 15

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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

What are the Federal Reserve’s four goals of monetary policy

price stability, high employment, economic growth, and stability of financial markets

The Federal Reserve’s two main monetary policy targets are

Money Supply and interest rates

Why does the money demand curve have a negative slope

because an increase in the interest rate decreases the quantity of money demanded

An increase in the interest rate

increases the opportunity cost of holding money, and a movement up along the money demand curve

An increase in the price level causes

The money demand curve to shift to the left

What would cause the money demand curve to shift to the left

A decrease in real GDP

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

An increase in real GDP can shift

money demand to the right and increase the equilibrium interest rate

when the price of a financial asset falls, its interest rate will

rise

Expansionary monetary policy refers to the ______ to increase real GDP

Federal Reserve’s increasing the money supply and decreasing interest rates

What is expansionary monetary policy?

Federal reserve buys bonds to increase money supply and decrease interest rates

What is contractionary monetary policy?

Federal reserve sells bonds to decrease money supply and increase interest rates

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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