ECON 705 MODULE 7 QUESTIONS WITH COMPLETE SOLUTIONS

Fiscal Policy CORRECT ANSWER spending and taxes exercised by Government Expansionary CORRECT ANSWER increase money supply and amount of money available, too much money leads to inflation, buying bonds Contractionary Monetary Policy CORRECT ANSWER take away money to manage inflation, to take money out of the system, selling bonds Federal Reserve CORRECT ANSWER monetary authority, controls the money supply to increase or decrease, can be the lender of last resort Federal Funds rate CORRECT ANSWER the interest rates that banks get loans from each other overnight, interbank overnight charge The dual mandate of the Fed CORRECT ANSWER maximum employment and price stability (keep inflation in check) Federal Open Market Committee CORRECT ANSWER most powerful committee, 7 board of Governors and 5 other committee members, make the decisions Inflation CORRECT ANSWER an increase in the general price level of the economy Money Supply CORRECT ANSWER if there is so much money in the economy, the price level rises Discount rate CORRECT ANSWER the interest rate that the Fed charges other bank, higher than Fed Funds Rate,