Monetary policy is one of the two main macroeconomic tools governments use to control the aggregate economy. The other is: fiscal policy. Monetary policy directly affects: the availability of credit. In the AS/AD model, a contractionary monetary policy: reduces both investment and aggregate demand.
Monetary policy that seeks to minimize the business cycle in the AS/AD model involves: contractionary monetary policy when the economy is above trend growth and expansionary policy when the economy is below trend growth.
federal funds rate. In 2008, the Fed followed an expansionary monetary policy, which was evident by the: decrease in the federal funds rate from 4 percent in January to 0.25 percent in December. One of the ultimate Fed's targets is: stable prices.
The curve most economists use to follow the relationship between the interest rates and bonds' time to maturity is the: yield curve. The standard discussion of monetary policy is based on the assumption that: long-term rates will rise when the Fed pushes up short-term interest rates.
Assuming an economy is initially at potential output, in the long run, an expansionary monetary policy is expected: not to affect output in the long run. If nominal income increases by 3 percent and real income increases by 4 percent, the price level must: decrease by 1 percent. Refer to the graph shown.
By law, a commercial bank is allowed to lend out of all its: excess reserves . To decrease the nation's money supply, the Fed can: increase reserve requirements. The discount rate is the interest rate: the Fed charges on loans to commercial banks.