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Expansionary and Contractionary Monetary Policy definitions

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  • Federal Reserve
    Central authority responsible for managing employment and price stability through monetary policy actions.
  • Monetary Policy
    Strategy for influencing economic activity by adjusting money supply and interest rates to achieve macroeconomic goals.
  • Money Supply
    Total amount of currency and liquid assets available in the economy, controlled by central bank operations.
  • Interest Rate
    Cost of borrowing money, determined in the money market and targeted by central bank to influence spending.
  • Aggregate Demand
    Total spending on goods and services in an economy, affected by investment, consumption, and net exports.
  • Aggregate Supply
    Total output of goods and services produced in an economy, represented in both short and long run models.
  • ADAS Model
    Framework combining aggregate demand and aggregate supply to analyze price levels and real GDP equilibrium.
  • Expansionary Policy
    Approach that increases money supply and lowers interest rates to stimulate investment and boost GDP during recessions.
  • Contractionary Policy
    Approach that decreases money supply and raises interest rates to reduce inflation and stabilize GDP during overheated periods.
  • Open Market Operation
    Central bank activity of buying or selling securities to adjust money supply and influence interest rates.
  • Investment
    Spending by firms on capital goods, sensitive to interest rate changes and a key component of aggregate demand.
  • Consumption
    Household spending on goods and services, influenced by interest rates and monetary policy actions.
  • Net Exports
    Difference between exports and imports, affected by domestic interest rates and currency value.
  • Equilibrium
    Point where supply and demand curves intersect, determining price level and real GDP in economic models.
  • Price Level
    Average of current prices across the entire economy, influenced by shifts in aggregate demand and supply.