Monetary Policy
1. | What is M1?
|
Currency + checkable deposits + travelers checks. | |
2. | What is M2? | M1 + savings deposits + small
time deposits + MMMFs + MMDAs + overnight repurchase agreements + Eurodollars.
|
|
3. | What is the monetary base, or
high-powered money?
|
Currency + bank reserves. | |
4. | What is the money multiplier?
|
The ratio of money (M1, M2, etc.) to the monetary base. | |
5. | What determines how large the
money multiplier is?
|
The currency-deposit ratio and the reserve ratio. | |
6. | How does the Federal Reserve control the money supply? | With open market operations, the
discount rate, and reserve requirements.
|
|
7. | Why might changes in the money
supply have real effects on the economy?
|
Because prices do not adjust instantaneously to changes in the money supply. | |
8. | If prices are not perfectly
flexible, how does a one-time unanticipated increase in the money supply affect nominal
interest rates? Real interest rates? Real output?
|
It lowers nominal and real interest rates and increases real output. | |
9. | How does a sustained increase in
the growth rate of the money supply affect nominal interest rates? Real interest rates?
Real output?
|
It does not affect real interest rates or output, but raises nominal interest rates. | |
10. | What is the short-run Phillips curve? | A negative relation between
inflation and the unemployment rate.
|
|
11. | What is the long-run Phillips curve? | The long-run Phillips curve is
vertical, depicting the lack of any relation between inflation and unemployment.
|
|
12. | What accounts for the difference between the two? | Imperfect short-run information. |