Exam 15: Monetary Policy

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.

Which of the following might break the link in the Keynesian transmission mechanism between the expansionary monetary policy and the goods-and-services market?

Exhibit 15-3 -Refer to Exhibit 15-3.The economy is currently at point 4.The Fed increases the money supply and the economy ends up at point 8.Has monetary policy been effective at moderating the business cycle?

Activists

Suppose that the bond market and the money market both start out in equilibrium,then the Federal Reserve increases the money supply.The result will be a ______________ in the money market and a _________________ in the bond market,which will push bond prices _________________ and interest rates will ___________________ until a new equilibrium is reached.

Economists who favor activist monetary policy argue that

As the opportunity cost of holding money decreases,the quantity demanded of money

Which of the following statements is true?

Nonactivists favor

The Keynesian link between the money market and the goods and services market is __________.Changes in the money market must affect the __________ market before the goods and services market is affected.

The economy is in a recessionary gap and there is complete crowding out.Furthermore,there is no evidence that the economy is in a liquidity trap or that investment is interest-insensitive.This makes the case for the use of __________ policy stronger than it might be otherwise.

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

The liquidity trap is the

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

If Real GDP increases at an annual rate of 3 percent and velocity increases at a rate of 2 percent per year,then rules-based monetary policy advocates who wish to maintain a stable price level would set the annual money supply growth rate at

If the economy is in the liquidity trap,people think that

The monetary policy most likely to be favored by monetarists is

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.

Under conditions of a liquidity trap and interest-insensitive investment,Keynesians would be most likely to propose __________ policy to eliminate a recessionary gap.

Suppose the money market is in the liquidity trap and the Fed increases the supply of money.We expect that