Revise later
SpaceTo flip
If confident
All Flashcards
What is the impact of lowering the reserve requirement on the money supply?
Increases the money supply.
What is the impact of raising the discount rate on the money supply?
Decreases the money supply.
What is the impact of the Fed buying bonds on the nominal interest rate?
Decreases the nominal interest rate.
What is the impact of the Fed selling bonds on the nominal interest rate?
Increases the nominal interest rate.
How does easy monetary policy affect aggregate demand?
Increases aggregate demand by lowering interest rates and increasing investment.
How does tight monetary policy affect aggregate demand?
Decreases aggregate demand by raising interest rates and decreasing investment.
What is the effect of increasing the money supply on investment demand?
Increases investment demand due to lower interest rates.
What is the effect of decreasing the money supply on investment demand?
Decreases investment demand due to higher interest rates.
What is the Fed's primary tool for conducting monetary policy?
Open market operations.
How does the Fed influence the federal funds rate?
Through open market operations.
What is the goal of expansionary monetary policy during a recession?
To lower interest rates, stimulate investment, and increase aggregate demand.
How does an increase in the price level affect money demand?
Increases money demand, shifting the curve to the right.
How does increased access to ATMs affect money demand?
Decreases money demand, shifting the curve to the left.
How does the Fed use open market operations to lower the federal funds rate?
The Fed buys government bonds, increasing the money supply.
How does a decrease in the discount rate affect the money supply?
Increases the money supply as banks borrow more from the Fed.
How does an increase in real GDP affect the demand for money?
Increases the demand for money, shifting the curve to the right.
How does a recession influence investment demand?
Decreases investment demand due to lower expected returns and uncertainty.
How does expected inflation impact the nominal interest rate?
Increases the nominal interest rate.
How does an increase in the nominal interest rate affect the quantity of money demanded?
It decreases the quantity of money demanded.
How does easy monetary policy impact investment?
It increases investment by lowering interest rates.
How does tight monetary policy impact investment?
It decreases investment by raising interest rates.
How does a change in the nominal interest rate affect the money demand curve?
Causes movement *along* the money demand curve, not a shift *of* the curve.
What is the difference between the nominal interest rate and the real interest rate?
Nominal = Real + Expected Inflation. Real is adjusted for inflation; nominal is not.
Differentiate between movement along the money demand curve and a shift of the curve.
Movement is caused by changes in the nominal interest rate. Shifts are caused by other factors (price level, GDP, etc.).
Compare and contrast easy and tight monetary policy.
Easy policy increases money supply, lowers rates. Tight policy decreases money supply, raises rates.
What is the difference between the discount rate and the federal funds rate?
Discount rate is what the Fed charges banks; federal funds rate is what banks charge each other.
Compare the effects of an increase in price level vs. an increase in real GDP on money demand.
Both shift the money demand curve to the right, increasing nominal interest rates.
Differentiate between the money market and the loanable funds market.
Money market focuses on short-term interest rates and money supply; loanable funds market focuses on long-term interest rates and savings/investment.
Compare the effects of buying vs. selling government bonds by the Fed.
Buying bonds increases the money supply and lowers interest rates; selling bonds decreases the money supply and raises interest rates.
Differentiate between monetary policy and fiscal policy.
Monetary policy is controlled by the central bank, while fiscal policy is controlled by the government.
Compare the effects of increasing vs. decreasing the reserve requirement.
Increasing the reserve requirement decreases the money supply; decreasing the reserve requirement increases the money supply.
What is the difference between the quantity of money demanded and the demand for money?
Quantity of money demanded is a point on the curve at a specific interest rate. Demand for money is the entire curve.
Compare the impact of a change in interest rates on money demand vs. investment demand.
An increase in interest rates decreases the quantity of money demanded and decreases investment demand.