Monetary Policy Test with Answers Rated A
Monetary Policy - -is a policy of influencing
the economy through changes in the banking Central bank - -is a type of banker's bank
system's reserves that influence the money whose financial obligations underlie an
supply and credit availability in the economy economy's money supply.
is controlled by the U.S. central bank (the Fed) In the U.S. this is the Fed, who's ability to create
Works through its conditions and the interest rate money give it power to control monetary policy
in the economy (affects both real output and the If commercial banks need to borrow money, they
price level) go to the central bank
is a policy response to events which is chosen
w/o a predetermined framework
Six Duties of the Fed - -1. Conducts
Monetary Policy: influencing the supply of money
Fiscal Policy - -is controlled by the and credit in the economy.
government directly 2. Supervising & regulating fnancial institutions
3. Lender of last resort to financial institutions
4. Provides banking services to the U.S. gov.
Contractionary monetary policy - -is a 5. Issuing coin and currency
policy that decreases the money supply and 6. Providing financial services such as check
increases the interest rate, and it tends to clearing to commercial banks, savings and loan
decrease both investment and output. associations, savings banks, and credit unions.
shifts the AD curve to the left
Monetary Base - -how the Fed influences
Expansionary monetary policy - -is a policy the amount of money in the economy by
that increases the money supply and decreases controlling the monetary base
the interest rate and it tends to increase both is vault cash + deposits at the Fed + currency in
investment and output. circulation
shifts the AD curve to the right.
If it is beyond potential output, it only increases
the price level. Allowable reserves - -vault cash or
Always increases nominal income deposits at the Fed. Reserves and interest rates
are inversely related
Real income - -% change nominal income
- % change price level (inflation) = % change of Federal Open Market Committee - -makes
real income monetary policy decisions
Decline in Interest Rates - -increases Open Market Operations - -are the primary
investment spending, which shifts the aggregate way in which the Fed changes the amount of
demand curve out to the right. reserves in the system.
is caused by expansionary monetary policy, is the Fed's buying and selling of government
which increases the quantity of money available securities
and the amount of loanable funds. used for day to day operations
1/3
Monetary Policy - -is a policy of influencing
the economy through changes in the banking Central bank - -is a type of banker's bank
system's reserves that influence the money whose financial obligations underlie an
supply and credit availability in the economy economy's money supply.
is controlled by the U.S. central bank (the Fed) In the U.S. this is the Fed, who's ability to create
Works through its conditions and the interest rate money give it power to control monetary policy
in the economy (affects both real output and the If commercial banks need to borrow money, they
price level) go to the central bank
is a policy response to events which is chosen
w/o a predetermined framework
Six Duties of the Fed - -1. Conducts
Monetary Policy: influencing the supply of money
Fiscal Policy - -is controlled by the and credit in the economy.
government directly 2. Supervising & regulating fnancial institutions
3. Lender of last resort to financial institutions
4. Provides banking services to the U.S. gov.
Contractionary monetary policy - -is a 5. Issuing coin and currency
policy that decreases the money supply and 6. Providing financial services such as check
increases the interest rate, and it tends to clearing to commercial banks, savings and loan
decrease both investment and output. associations, savings banks, and credit unions.
shifts the AD curve to the left
Monetary Base - -how the Fed influences
Expansionary monetary policy - -is a policy the amount of money in the economy by
that increases the money supply and decreases controlling the monetary base
the interest rate and it tends to increase both is vault cash + deposits at the Fed + currency in
investment and output. circulation
shifts the AD curve to the right.
If it is beyond potential output, it only increases
the price level. Allowable reserves - -vault cash or
Always increases nominal income deposits at the Fed. Reserves and interest rates
are inversely related
Real income - -% change nominal income
- % change price level (inflation) = % change of Federal Open Market Committee - -makes
real income monetary policy decisions
Decline in Interest Rates - -increases Open Market Operations - -are the primary
investment spending, which shifts the aggregate way in which the Fed changes the amount of
demand curve out to the right. reserves in the system.
is caused by expansionary monetary policy, is the Fed's buying and selling of government
which increases the quantity of money available securities
and the amount of loanable funds. used for day to day operations
1/3
