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.
Short-term interest rates Long-term interest rates Money demand curve Liquidity preference model of the interest rate Money supply curve Target federal funds rate Expansionary monetary policy Contractionary monetary policy Taylor rule for monetary policy Inflation targeting Zero lower bound for interest rates Monetary neutrality | 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. the Federal Reserve’s desired level for the federal funds rate. The Federal Reserve adjusts the money supply through the purchase and sale of Treasury bills until the actual rate equals the desired rate. monetary policy that, through the raising of the interest rate, reduces aggregate demand and therefore output. 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. statement of the fact that interest rates cannot fall below zero. a model of the market for money in which the interest rate is determined by the supply and demand for money. a graphical representation of the relationship between the quantity of money supplied by the Federal Reserve and the interest rate. monetary policy that, through the lowering of the interest rate, increases aggregate demand and therefore output. a rule that sets the federal funds rate according to the level of the inflation rate and either the output gap or the unemployment rate. the interest rate on financial assets that mature within less than a year. the interest rate on financial assets that mature a number of years into the future. an approach to monetary policy that requires that the central bank try to keep the inflation rate near a predetermined target rate. |