Exam 27: Monetary Policy and Interest Rates

When economic forces push the economy toward excessively high unemployment, what policy action should the Federal Reserve take to return the economy to a lower unemployment rate?

Low interest rates could exist due to either a _____ money supply or _____ inflationary expectations.

If the Federal Reserve wants to cause a recession to end, it will choose ______ monetary policy to cause _____ to:

The Keynesian approach to policy focuses on using policy tools to manipulate _____ to create full employment in the economy.

Rising stock prices lead investors to buy stocks to gain from the rising prices. A frenzy of buying causes stock prices to rise more than would be expected based on the fundamental situations of the firms whose stock is being bought and sold. Economists call this activity in the stock market:

An economy is in a liquidity trap when:

(Figure: Changing Demand) What do graphs "A" and "B" represent for an economy?

Use the Fisher effect to explain how changes in the inflation rate can cause changes in interest rates.