15.6 KEY TERMS

Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.

  1. Expansionary monetary policy
    Contractionary monetary policy
    Monetary transmission mechanism
    Zero lower bound for interest rates
    Money supply curve
    Long-term interest rates
    Short-term interest rates
    Quantitative easing (QE)
    Money demand curve
    Monetary neutrality
    Liquidity preference model of the interest rate
    Inflation targeting
    Non-monetary assets
    the interest rate on financial assets that mature a number of years into the future.
    monetary policy that, through the raising of the interest rate, reduces aggregate demand and therefore output.
    statement of the fact that interest rates cannot fall below zero.
    a graphical representation of the relationship between the quantity of money supplied and the interest rate.
    a monetary policy in which a government tries to drive down interest rates, thus exerting an expansionary effect on the economy, by buying longer-term government bonds, instead of the shorter-term bonds it would buy usually.
    an approach to monetary policy that requires that the central bank try to keep the inflation rate near a predetermined target rate.
    monetary policy that, through the lowering of the interest rate, increases aggregate demand and therefore output.
    the interest rate on financial assets that mature within less than a year.
    the concept that changes in the money supply have no real effects on the economy in the long run and only result in a proportional change in the price level.
    assets that are not made up of money, nor function as money.
    the channels through which a change in interest rates (or money supply) will cause a shift in the aggregate demand curve (and ultimately affect the economy’s output and inflation rate).
    a graphical representation of the relationship between the interest rate and the quantity of money demanded. The money demand curve slopes downward because, other things equal, a higher interest rate increases the opportunity cost of holding money.
    a model of the market for money in which the interest rate is determined by the supply and demand for money.
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