Chapter 16 Econ Checklist
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7 Terms
1
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The Federal Reserve uses 3 primary tools to influence AD, what are they?
open market operations
lending to banks and other financial institutions
changes in the interest rate paid on reserves
lending to banks and other financial institutions
changes in the interest rate paid on reserves
2
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When faced with a negative shock to AD, the central bank can restore AD through a what policy, but it’s hard to make it right.
expansionary monetary policy
3
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What are the difficulties that make it hard for the Fed to get things right?
monetary policy is subject to uncertainties in impact and timing
4
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If the Federal Reserve increases money supply too much, what will happen?
could lead to disinflation which results in a recession
5
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a significant reduction in the rate of inflation
disinflation
6
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When this dilemma happens, a central bank must choose between too low a growth rate (with a high rate of unemployment) and too high a rate of inflation
negative real shock dilemma
7
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One of the Federal Reserve’s most powerful tools is its what?
influence over expectations