Exam 14: The Monetary Policy Approach to Stabilization  

The goal of contractionary monetary policy is

An increase in the required reserve ratio will decrease the money supply.

The effect of expansionary monetary policy is to

According to the Keynesians, which component of aggregate demand changes in response to monetary policy?

Expansionary monetary policy serves to increase aggregate demand.

Keynesian theorists believe that monetary policy is effective because of the impact it has on

Suppose we observe bond prices decreasing. A probable cause of this is

When the Federal Reserve sells bonds on the open market, bond prices will fall and interest rates will increase.

Expansionary monetary policy will _________ the price level.

An expansionary monetary policy results in lower interest rates, which in turn

What effect does a contractionary monetary policy have on aggregate demand?

The _________ _________ rate is the rate charged on overnight loans between banks.

When the Federal Reserve purchases bonds in the open market, it will increase bond prices and increase interest rates.

For the Fed to attract buyers for new U.S. Treasury bonds, it must

In the long run, there appears to be a direct effect between the rate of growth of money supply and

There appears to be no long-term link between increases in the money supply and rates of inflation.

How are bond prices affected when the Federal Reserve sells bonds?

Banks typically respond to a situation of holding excess reserves by issuing new loans.

When the Fed implements an expansionary monetary policy,

A loose monetary policy is one that