Chapter 14 - The Federal Reserve and Monetary Policy

Exchange rate

________: The price at which currencies trade for one another in the market.

Bonds

________ are loans that are repaid with interest.

Stocks

________ are shares in the ownership of a corporation.

sale of US

Open Market Operations: The purchase or ________> government securities by the Fed.

Appreciation

________ of a currency: An increase in the value of a currency.

Depreciation

________ of a currency: A decrease in the value of a currency.

price level

The ________ and GDP affect money demand.

net exports

An increase in interest rates will reduce both investment spending (including consumer durables) and ________.

interest rates

A decrease in ________ will increase investment spending and net exports.

Discount Rate

________: The interest rate at which banks can borrow from the Fed.

Feds ultimate goal

The ________ is to change output by either slowing or speeding the economy by influencing aggregate demand.

Demand and Supply of Money

Quantitative Easing: Purchasing long- term securities 14.3 How Interest Rates Are Determined: Combining the ________ Interest Rates and Bond Prices.

Interest rates

________ affect money demands.

Money market

______________: The market for money in which the amount supplied and the amount demanded meet to determine the nominal interest rate.

Transaction demand for money

_______________________: The demand for money is based on the desire to facilitate transactions.

Principle of Opportunity Cost

_____________________: The opportunity cost of something is what you sacrifice to get it.