Ch. 15

Question 1

transmission mechanism

Answer 1

The routes, or channels, traveled by the ripple effects that the money market creates and that affect the goods and services market (represented by the aggregate demand and aggregate supply curves in the AD–AS framework).

Question 2

Demand for Money (Balances)

Answer 2

The inverse relationship between the quantity demanded of money balances and the price of holding money balances.

Question 3

liquidity trap

Answer 3

The horizontal portion of the demand curve for money.

Question 4

Expansionary Monetary Policy

Answer 4

The policy by which the Fed increases the money supply

Question 5

Contractionary Monetary Policy

Answer 5

The policy by which the Fed decreases the money supply.

Question 6

activists

Answer 6

Persons who argue that monetary and fiscal policies should be deliberately used to smooth out the business cycle.

Question 7

fine-tuning

Answer 7

The (usually frequent) use of monetary and fiscal policies to counteract even small undesirable movements in economic activity.

Question 8

non-activists

Answer 8

Persons who argue against the deliberate use of discretionary fiscal and monetary policies. They believe in a permanent, stable, rule-oriented monetary and fiscal framework

Question 9

inflation targeting

Answer 9

Targeting that requires the Fed to keep the inflation rate near a predetermined level.