Exam 15: Monetary Policy

According to the Keynesian transmission mechanism, if the Fed conducts an open market purchase of government securities, it may cause which of the following in the investment goods market?

As the interest rate increases, the opportunity cost of holding money __________ and individuals choose to hold __________ money.

A rules-based monetary policy

Persons who argue against the deliberate use of fiscal and monetary policies to smooth out the business cycle are referred to as

If the money market is in the liquidity trap, then people

The predetermined-money-growth-rate rule states that the annual growth rate in the money supply will be constant at the average annual growth rate of Real GDP.

Economists who propose a constant-money-growth-rate rule often argue that setting the annual growth rate in the money supply equal to the average annual growth rate in Real GDP

A person who opposes the deliberate use of fiscal and monetary policies is called a(n)

What are the two assumptions made in the nonactivist constant-money-growth-rate rule? Describe the alternative rule known as the predetermined-money-growth-rate rule and explain why some nonactivists prefer this rule.

Exhibit 15-4 Assume that people have only two choices when it comes to holding their wealth: in money or in bonds. -Refer to Exhibit 15-4. In the row of this table containing blank (A), people are holding ______________ of their wealth in bonds and ________________ of their wealth in money.

If you believe the economy is self-regulating, you are more likely to be a(an) __________ than a(an) __________.

One criticism of monetary policy based on a predetermined steady growth rate in money supply is that

If the money market is in the liquidity trap, it is operating in the __________ segment of the __________ demand curve.

If the interest rate increases, the opportunity cost of holding money __________, and the quantity demanded of money __________.

Nonactivists argue against the use of discretionary monetary policy and rules-based monetary policy.

When is it best to sell bonds?

Exhibit 15-3 -Refer to Exhibit 15-3. The economy is currently at point 7. If the economy self-regulates, it will end up at point __________, whereas if contractionary monetary policy is effective, it will end up at point __________.

Which of the following statements is false?

The supply of bonds rises, ceteris paribus, and the price of bonds __________. This __________ the interest rate and __________ the quantity demanded of money.

The quantity demanded of money decreases as the supply of money increases.