19.8 KEY TERMS

image | interactive activity

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.

Question

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
statement of the fact that interest rates cannot fall below zero.
a graphical representation of the relationship between the quantity of money supplied by the Federal Reserve and the interest rate.
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.
monetary policy that, through the lowering of the interest rate, increases aggregate demand and therefore output.
a model of the market for money in which the interest rate is determined by the supply and demand for money.
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.
a rule for setting the federal funds rate that takes into account both the inflation rate and the output gap.
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.
an approach to monetary policy that requires that the central bank try to keep the inflation rate near a predetermined target rate.