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Related Flashcards
Related Topics
Cards In This Set
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What is monetary policy?
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Policy followed by the Fed using money supply and interest rates to pursue macroeconomic objectives
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2 monetary policy targets used to achieve policy goals?
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Money supply & Interest Rates
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Who controls the money supply?
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The Fed
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How does the Fed shift the MS to the RIGHT?
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Open marketing PURCHASES (buys bonds up to put money into the economy)
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How does the Fed shift the MS to the LEFT?
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Open market SALES(sells bonds back to take money out of the economy)
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2 things causing MD to shift to right?
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Increase in Real GDP & Increase in PL.
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Does a change in Int. Rates change MS?
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NO!!
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T or F: ^ P of bonds -> V int rates
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True.
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What are the 2 models of int. rates determination?
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1) loanable funds model- LR REAL int rate- Adjusted for inflation 2) money market model- SR NOMINAL int rate- Not adjusted for inflation
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If Fed decr. int rates, what will the 3 increases be in?
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Consumption, investment & net exports
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T or F: Monetary Policy causes inflation
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TRUE
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If econ is BELOW full employment, Fed should engage in _____ policy.
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EXPANSIONARY. Incr MS & Decr Int Rates
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If econ is ABOVE full employment, Fed should engage in _____ policy.
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CONRACTIONARY. Decr MS & Incr Int Rates
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3 different types of targets Fed can concentrate on?
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Money, Interest Rate, Inflation Rate
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