Monetary Policy and Economic Gaps

What determines the equilibrium interest rate in the context of monetary policy?

• The FED sets both supply and demand.

• The FED sets the supply, and people set the demand.

• People set both supply and demand.

• The FED sets both supply and interest rate.

What is the economic condition called when the economy is producing less than its full employment GDP?

• Inflationary gap

• Deflationary gap

• Recessionary gap

• Stagflation

How does an increase in money supply affect interest rates?

• It stabilizes interest rates.

• It has no effect on interest rates.

• It decreases interest rates.

• It increases interest rates.

Which of the following is NOT a tool used by the FED to increase the money supply?

• Buying bonds

• Lowering the discount rate

• Increasing taxes

• Lowering the reserve requirement

What is the collective term for the actions taken by the FED to manage the economy's money supply?

• Fiscal policy

• Economic policy

• Monetary policy

• Supply-side policy