Chapter 18 Vocabulary

Question 1

a set of actions to control a nation’s overall money supply and achieve economic growth

Answer 1

monetary policy

Question 2

when a central bank takes action that reduces the money supply in the economy

Answer 2

contractionary monetary policy

Question 3

when a central bank acts to increase the money supply in an effort to stimulate the economy

Answer 3

expansionary monetary policy

Question 4

the strategic use of monetary policy to counteract macroeconomic expansions and contractions

Answer 4

active monetary policy

Question 5

when central banks purposefully choose only to stabilize the money supply and price levels through the monetary policy

Answer 5

passive monetary policy

Question 6

the money supply does not affect real economic variables

Answer 6

monetary neutrality

Question 7

short-run negative relationship between inflation and unemployment rates

Answer 7

phillips curve

Question 8

people’s expectations of future inflation are based on their most recent experience

Answer 8

adaptive expectations

Question 9

people form expectations on the basis of all available information

Answer 9

rational expectations

Question 10

a combination of high inflation and economic stagnation

Answer 10

stagflaction

Question 11

the simultaneous purchase and sale of the same asset in different markets in order to profit from tiny differences in the asset’s listed price

Answer 11

arbitrage

Question 12

a limit on the price of a good or service

Answer 12

reservation rate