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Chapter 16: Monetary Policy (page 321)

Define Monetary Policy?

Short Answer

Expert verified

Interest Rates changes

Step by step solution

01

Monetary Policy

Monetary Policy involves using interest rates and other monetary tools to influence the level of consumer spending and aggregate demand. Monetary policy aims to stabilize the economic cycle - keeping inflation low and avoiding recessions.

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Most popular questions from this chapter

When bond prices go up, interest rates go _______.

a. up

b. down

c. nowhere

A bank currently has \(100,000 in checkable deposits and \)15,000 in actual reserves. If the reserve ratio is 20 percent, the bank has ______ in money-creating potential. If the reserve ratio is 14 percent, the bank has _______ in money-creating potential

a. \(20,000; \)14,000

b. \(3,000; \)2,100

c. −\(5,000; \)1,000

d. \(5,000; \)1,000

Which of the following Fed actions will increase bank lending?

Select one or moreanswers from the choices shown.

a. The Fed raises the discount rate from 5 percent to 6 percent.

b. The Fed raises the reserve ratio from 10 percent to 11 percent.

c. The Fed lowers the discount rate from 4 percent to 2 percent.

d. The Fed sells bonds to commercial banks.

True or False: A liquidity trap occurs when expansionary monetary policy fails to work because an increase in bank reserves by the Fed does not lead to an increase in bank lending.

What are the components affected in a contractionary monetary policy?
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