Lower interest rates decrease the cost of borrowing, leading to increased investment spending.

Increasing the money supply lowers interest rates, encouraging borrowing and spending, thus increasing aggregate demand.

Contractionary policy reduces the money supply and aggregate demand, leading to a lower price level.

By maintaining price stability and full employment, monetary policy creates a stable environment conducive to long-term economic growth.

Expansionary monetary policy can lead to inflation if the money supply increases too much.

Contractionary monetary policy can lead to a recession if it reduces aggregate demand too much.

Monetary policy may be less effective during a liquidity trap when interest rates are already near zero.

Changes in interest rates due to monetary policy can affect the value of a country's currency relative to others.

The Fed acts as a lender of last resort and regulates banks to maintain stability in the financial system.

Credible monetary policy can anchor inflation expectations, making it easier to control actual inflation.

Monetary policy is controlled by the Fed and involves managing the money supply and interest rates. Fiscal policy is controlled by the government and involves taxes and spending.

Both are interest rates, but the discount rate is what the Fed charges banks, while the federal funds rate is what banks charge each other.

Expansionary policy increases the money supply to stimulate the economy, while contractionary policy decreases the money supply to curb inflation.

In the short run, monetary policy affects output and employment. In the long run, it primarily affects the price level.

Both actions increase the money supply, but buying bonds does so directly, while decreasing the reserve ratio allows banks to lend more.

Advantage: flexible and easily reversible. Disadvantage: impact can be difficult to predict precisely.

Lower interest rates stimulate both, but investment spending is often more sensitive to interest rate changes.

During a recession, the goal is to increase output and employment. During inflation, the goal is to stabilize prices.

Monetary policy typically has a shorter implementation lag but a longer impact lag compared to fiscal policy.

Monetary policy is generally more effective in an open economy due to the exchange rate channel.

Actions by the Federal Reserve to manage the money supply and interest rates to influence aggregate demand and economic stability.

A policy that increases the money supply to stimulate economic activity, often during recessions.

A policy that decreases the money supply to curb inflation.

The interest rate at which commercial banks can borrow money directly from the Fed.

The percentage of deposits banks must hold in reserve and cannot lend out.

The Fed's buying and selling of government bonds to influence the money supply.

The interest rate banks charge each other for overnight loans of reserves.

A situation where the actual output is less than the potential output, leading to high unemployment.

A situation where the actual output exceeds the potential output, leading to inflation.

The total demand for goods and services in an economy at a given price level.