The Credibility of Monetary Policy Is The

question 61

Multiple Choice

The credibility of monetary policy is the:

• A)recognition that open market purchases increase the money supply, even though banks and the public affect the money multiplier.
• B)degree to which the public believes the central bank's promises to keep inflation low, even if doing so may impose short-run costs.
• C)pace at which monetary policy can return an economy to potential when inflationary expectations are anchored.
• D)practice of the Federal Reserve of relying primarily on open market operations rather than discount rate lending or changes in reserve requirements.

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Definitions:

Economic Contraction

A decline in national output as measured by GDP, often leading to higher unemployment and lower spending.

Multiplier Size

The ratio of change in the economic output to the initial change in spending or investment that brought it about, indicating the scale of impact on the economy.

Government Purchases

Expenditures on goods and services by government at all levels, excluding transfer payments.

Total Output

The total value of all goods and services produced in an economy during a specific time period.