Term
| short-term interest rates |
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Definition
| the interest rates on financial assets that mature within less than a year |
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Term
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Definition
| interest rates on financial assets that mature a number of years in the future |
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Term
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Definition
| shows the relationship between the quantity of money demanded & the interest rate |
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Term
| we usually compare the rate of return on money with _____, not _____ |
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Definition
| short-term; long-term interest rates |
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Term
| holding money provides liquidity but incurs an opportunity cost that rises with the interest rate, leading to the downward slope of the _____ |
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Definition
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Term
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Definition
| shows how the quantity of money supplied varies with the interest rate |
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Term
| target federal funds rate |
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Definition
| the Federal Reserve's desired federal funds rate |
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Term
| according to the _____, the equilibrium interest rate is determined by the money demand curve & the money supply curve |
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Definition
| liquidity preference model of the interest rate |
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Term
| in practice, the Fed sets a _____ & uses open-market operations to achieve that target |
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Definition
| target federal funds rate |
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Term
| expansionary monetary policy |
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Definition
| monetary policy that increases aggregate demand |
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Term
| contractionary monetary policy |
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Definition
| monetary policy that reduces aggregate demand |
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Term
| the Federal Reserve can use _____ to increase aggregate demand & _____ to reduce aggregate demand |
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Definition
| expansionary monetary policy; contractionary monetary policy |
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Term
| the _____ says that the target federal funds rate should rise when there is a positive output gap, high inflation, or both & fall when there is a negative output gap, low or negative inflation, or both |
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Definition
| Taylor rule for monetary policy |
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Term
| in contrast to the Taylor rule for monetary policy, some central banks set monetary policy by _____, a forward-looking policy rule, rather than by using the Taylor rule, a backward-looking policy rule |
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Definition
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Term
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Definition
| changes in the money supply have no real effects on the economy |
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Term
| according to the concept of _____, changes in the money supply do not affect real GDP, only the aggregate price level |
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Definition
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