Chap 15

Question 1

precautionary demand for money?

Answer 1

money held for unexpected market transactions or FOR EMERGENCIES. money held in case something unexpected happens

Question 2

speculative demand for money?

Answer 2

money held for speculative purposes, meaning for later financial opportunities.
ex. you have money and are looking to invest it in stock but are waiting to pick the right one and see which one is hot, this is speculative demand

Question 3

transactions demand for money?

Answer 3

money held for making everyday market purchases?

Question 4

equilibrium rate of interest?

Answer 4

the interest rate at which the quantity of money demand in a particular time period = the quantity of money supplied

Question 5

federal funds rate?

Answer 5

interest rate for interbank reserve loans

Question 6

liquidity trap?

Answer 6

portion of money demand curve that is horizontal, meaning it is the people who are willing to hold unlimited amounts of money at some (low) interest rate
- meaning further expansion of the money supply has no effect on the rate of interest

Question 7

bond?

Answer 7

simply a piece of paper certifying that someone has borrowed money and promises to pay it back at some future date. simply it is an IOU

Question 8

yeild

Answer 8

rate of return on a bond, the annual interest payment divided b the bond’s price

Question 9

what three things does the FED do to stimulate the economy?

Answer 9

1. increase money supply
2. reduce interest rates
3. increase aggregate demand

Question 10

how does the Fed achieve monetary restraint?

Answer 10

1. decrease in the money supply
2. increase in interest rates
3. decrease in aggregate demand

Question 11

how does the Fed stimulate economy?

Answer 11

1. increase money supply
2. reduce interest rates
3. increase aggregate demand

Question 12

who came up with the liquidity trap and whose view is it?

Answer 12

Keynes and keynesian view

Question 13

keynesians believe monetary policy works how and as compared to what?

Answer 13

indirectly through its effects on interest rates and spending compared to monetarist view on monetary policy

Question 14

monetarist believe monetary policy works how and as compared to what?

Answer 14

has more direct and more certain impacts, particularly on price levels compared to keynesian view of interest rates

Question 15

What do monetarists focus on? what do keynesians focus on?

Answer 15

long term linkages, they focus on money supply and keynesians focus on interest rate

Question 16

keynesians conclude what about fiscal policy and how do the monetarists feel about it?

Answer 16

it is more powerful in the short run, but monetarists say the unpredictability to short-run velocity makes any short-un policy risky