Assignment:
Answer the following questions in 100 words or more in your own words.
1. What is the difference between contractionary monetary policy and expansionary monetary policy? What monetary policy would be applied during a recession, and what policy would be used in a strong expansion in which inflationary pressures were evident?
2. Consider who is responsible for setting monetary policy in the United States. How is this group chosen?
3. Explain the difference between nominal and real variables and give two examples of each. According to the principle of monetary neutrality, which variables are affected by changes in the quantity of money?
4. Explain how an increase in the price level affects the real value of money.