EC140 Lecture Notes - Lecture 16: Human Capital, Monetary Reform, Monetary Policy

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Ec149 chapter 27 lecture 15: monetary equilibrium, graphed in terms of interest rates (price) and the quantity of money, money demand is downward sloping, money supply is vertical, monetary equilibrium when they are equal. If the (cid:271)a(cid:374)k targets the (cid:373)o(cid:374)e(cid:455) suppl(cid:455), the i(cid:374)terest rate (cid:449)ill u(cid:272)tuate. Doubling bank deposits, the value of (cid:272)ash, a(cid:374)d pri(cid:272)es (cid:449)ould ha(cid:448)e (cid:374)o e e(cid:272)t: monetary reform has tested this, ke(cid:455) to e e(cid:272)tive monetary policy is slow adjustment of prices. Long-run neutrality of money: money supply increases, interest rate falls, gdp & prices increase, money demand increases. I(cid:374) atio(cid:374)ar(cid:455) gap - wages rise: gdp returns to potential gdp, h(cid:455)steresis e e(cid:272)ts. I(cid:374)(cid:448)est(cid:373)e(cid:374)t a(cid:374)d te(cid:272)h(cid:374)olog(cid:455) (cid:373)a(cid:455) respo(cid:374)d to e e(cid:272)ti(cid:448)e (cid:373)o(cid:374)etar(cid:455) poli(cid:272)(cid:455: short-term vs. long-term interest rates, hu(cid:373)a(cid:374) (cid:272)apital (cid:373)a(cid:455) (cid:271)e sig(cid:374)i (cid:272)a(cid:374)tl(cid:455) redu(cid:272)ed (cid:271)(cid:455) re(cid:272)essio(cid:374)ar(cid:455) gaps, monetary policy to eliminate recessionary gaps may have long-term value, mo(cid:374)e(cid:455) a(cid:374)d i(cid:374) atio(cid:374)

Related Questions

According to the interest-rate-based monetary policy transmission mechanism, an increase in the money supply generates:

a. lower interest rates, which causes an increase in planned real investment spending and an increase in aggregate demand.

b. spending on consumer goods and services directly, which causes an increase in aggregate demand.

c. an increase in nominal GDP and a change in the price level, but no change in real GDP.

d. an increase in aggregate supply since the supply of money is part of aggregate supply.

azuregerbil469

The steps in the transmission of monetary policy are:

(i) Increase in government expenditures by the government which subsequently increases the aggregate demand.

(ii) Increase in money supply by the government that decreases the interest rate and lead to an increase in the aggregate demand.

(iii) Increase in government expenditures by the Federal Reserve leading to an increase in the aggregate demand.

(iv) Increase in the budget deficit by the government, which increases the money supply leading to an increase in the aggregate supply.

(v) A decrease in the federal funds rate by the Federal Reserve which lowers the real interest rate and subsequently increases the aggregate demand.

Question 16 (3 points) An expansionary monetary policy by the Fed should lead to:

A decrease in investment and a decrease in aggregate demand. Leave investment unchanged but decrease aggregate demand.

An increase in investment and an increase in aggregate demand.

An increase in investment and a decrease in aggregate demand.

Question 17 (3 points) Federal Reserve policy may have little impact on aggregate demand if:

Exchange rates do not respond to a change in market interest rates.

Investment by firms fails to respond to lower interest rates.

Banks meet their reserve requirements.

People fail to spend the extra money they receive when the Fed cuts taxes.

Question 18 (3 points) A liquidity trap is said to exist when a change in monetary policy has no effect on:

The supply of government bonds.

The natural level of employment

Aggregate supply.

Interest rates.

Question 19 (3 points) Because of the problem of lags, monetary authorities should probably respond to conditions:

Expected to exist in the future.

Immediately as they arise.

In the recent past.

Based on past statistics.

amberbeaver601

EC140 Lecture Notes - Lecture 16: Human Capital, Monetary Reform, Monetary Policy

EC140 Full Course Notes

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