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Expansionary Monetary Policy

A policy aimed at increasing the money supply and lowering interest rates to stimulate economic growth.

Aggregate Demand (AD)

The total demand for goods and services within an economy at a given overall price level and in a given time period.

Federal Funds Rate

The interest rate banks charge each other for short-term loans.

Open Market Operations (OMO)

The buying and selling of government securities in the open market to regulate the money supply.

If the Feds buy bonds on the open market, reserves will __________.

Increase.

If the Feds sell bonds, what happens to reserves and interest rates?

Reserves decrease and interest rates increase.

Money Supply

The total amount of money available in an economy at a particular point in time.

Nominal Interest Rate (IR)

The interest rate before adjustment for inflation.

Real Interest Rate (RIR)

The nominal interest rate adjusted for inflation.

Crowding Out Effect

Occurs when government borrowing leads to higher interest rates and reduced private sector investment.

Barter Economy

An economy where goods and services are traded directly for other goods and services without using money.

Fractional Reserve System

A banking system in which banks hold only a fraction of deposits in reserve and use the rest for loans.

What is the relationship between actual employment rate and NRU regarding Feds' intervention?

If Actual Employment Rate > Natural Rate of Unemployment (NRU), Feds can increase administered interest rates.

Expansionary Fiscal Policy

A government policy that increases spending and decreases taxes to stimulate economic growth.

Interest Rate Increase

Occurs when expansionary fiscal policy is implemented without an increase in money supply, leading to higher interest rates.

What results from expansionary monetary policy in the short run?

Money supply increases, nominal interest rate decreases, bond prices increase, and RIR decreases.

Cost of Transactions in a Barter Economy

Higher than in a money economy due to the lack of a standard medium of exchange.