Chapter 15

Question 1

Keynes theory of liquidity preference

Answer 1

interest rates adjust to bring money supply and demand into balance

Question 2

monetary policy

Answer 2

flexible rates (no interference), fixed (interference by central bank)

Question 3

active monetary policy pros and cons

Answer 3

pro - helps unemployment. con - focus should be long term

Question 4

monetary policy affects the money market

Answer 4

adjusting the interest rate and money supply, which affects borrowing costs, spending, and overall economic activity

Question 5

monetary policy affects AD

Answer 5

influencing interest rates and the money supply, thereby impacting spending, investment, and consumption in an economy.