In the Early 2000s, Policy Makers Were Able To

question 26

Multiple Choice

In the early 2000s, policy makers were able to:

• A)run contractionary policy without causing deflation.
• B)run expansionary policy without causing inflation.
• C)run contractionary policy without causing a rise in unemployment.
• D)impose tariffs on foreign goods without causing retaliation by foreign countries.

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Definitions:

Monetary Multiplier

The ratio of the change in the money supply to the change in reserves, indicating the potential increase in money supply through the banking system.

Legal Reserve Ratio

The minimum fraction of customer deposits and notes that each commercial bank must hold as reserves rather than lend out, often set by central banks.

Reserve Requirement

A regulation that sets the minimum reserves each bank must hold to customer deposits and notes, intended to ensure bank liquidity and financial stability.

Excess Reserves

Funds held by banks over and above the legally mandated requirements to back deposits.