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Expansionary and Contractionary Monetary Policy definitions

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  • Federal Reserve
    Central authority managing employment and price stability by influencing money supply and interest rates.
  • Expansionary Monetary Policy
    Strategy to boost economic activity during recessions by increasing money supply and lowering interest rates.
  • Contractionary Monetary Policy
    Approach to reduce inflation by decreasing money supply and raising interest rates, cooling an overheated economy.
  • Interest Rate
    Cost of borrowing money, adjusted by central authorities to influence investment, consumption, and net exports.
  • Aggregate Demand
    Total spending on goods and services, influenced by changes in investment, consumption, and net exports.
  • Aggregate Supply
    Total output of goods and services available at various price levels in the economy.
  • Long Run Equilibrium
    State where output matches potential GDP and price levels are stable, with no cyclical unemployment.
  • Short Run Equilibrium
    Temporary state where aggregate demand and short-run aggregate supply intersect, possibly away from potential GDP.
  • Money Supply
    Total amount of currency and deposits available in the economy, directly influenced by central bank actions.
  • Open Market Operations
    Purchases or sales of securities by the central bank to adjust the money supply and influence interest rates.
  • Cyclical Unemployment
    Joblessness resulting from downturns in economic activity, often addressed by expansionary policies.
  • Price Level
    Average of current prices across the entire spectrum of goods and services produced in the economy.
  • Net Exports
    Difference between a country's exports and imports, affected by changes in interest rates and aggregate demand.
  • Investment
    Expenditures by firms on capital goods, sensitive to changes in borrowing costs set by monetary policy.
  • Consumption
    Household spending on goods and services, influenced by interest rates and overall economic conditions.