Depository Institutions (DIs)play an Important Role in the Transmission of Monetary

question 7

Multiple Choice

Depository institutions (DIs) play an important role in the transmission of monetary policy from the Federal Reserve to the rest of the economy because

• A)loans to corporations are part of the money supply.
• B)bank and thrift loans are tightly regulated.
• C)U.S. DIs compete with foreign financial institutions.
• D)DI deposits are a major portion of the money supply.
• E)thrifts provide a large amount of credit to finance residential real estate.

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Definitions:

Phillips Curve

An economic theory that suggests an inverse relationship between the rate of inflation and the unemployment rate.

Aggregate Demand

The overall requirement for products and services in an economic setting, identified at a specific price level and time period.

Short-Run Aggregate Supply

The total supply of goods and services that firms in an economy plan on selling during a short-term period, assuming some input prices are fixed.

Inflation

A sustained increase in the general price level of goods and services in an economy over a period of time, leading to a decrease in the currency’s purchasing power.