Exam 14: Monetary Policy

In an effort to address the troubled economy, ..."For the ninth time in just over a year, the Federal R is expected to cut interest rates, quite possibly its last reduction in this downturn." Rates have not this low "... since 2003, when the economy was growing at a snail's pace. " HYPERLINK "http://www.csmonitor.com/" www.csmonitor.com, 10/28/20 The "interest rates" the Fed is cutting is the _ _.

The Taylor rule uses three variables to determine the target for the federal funds rate. Which of the following is NOT one of those variables?

In an effort to address the troubled economy, ..."For the ninth time in just over a year, the Federal Re is expected to cut interest rates, quite possibly its last reduction in this downturn." Rates have not this low "... since 2003, when the economy was growing at a snail's pace. " HYPERLINK "http://www.csmonitor.com/" www.csmonitor.com, 10/28/20 The Fed's rate cuts will bank reserves and .

In the economy of Callumtaylia, the current inflation rate is 6 percent and the Central Bank's target inflation rate is 2 percent. Real GDP exceeds potential GDP by 1 percent, and the long- term growth rate of real GDP is 5 percent. The medium- term growth rate of the velocity of circulation of the monetary base is 2 percent. a) According to the McCallum rule, what growth rate of the economy's monetary base should the Central Bank b) According to the Taylor rule, what federal funds rate should the Central Bank set? c) What are two major differences between the McCallum rule and the Taylor rule?

An increase in the quantity of reserves leads to a

Monetary policy could be enacted on which of the following bases? I. Instrument rule II. Fiscal- related rule. III. Targeting rule.

When the Fed lowers the federal funds rate, it increases reserves and increases the quantity of deposits and loans created.

In December, the Bank of England reduced interest rates by another 50 basis points after it had cut by 150 basis points in November. But the rate cut may even be larger. Economists "... expect the Monetary Policy Committee [MPC] to cut rates to 2.5 percent,"...while others "...saw a bigger 75 poin cut"...or "a 100 basis point move. " Reuters, 11/27/200 Which of the following statements describes the effectiveness of the monetary policy?

Which of the following is true concerning the operation of monetary policy?

Which of the following is a potential monetary policy instrument for the Fed?

In the short run, the Federal Reserve faces a tradeoff between

In the short run, monetary policy can

If the Fed sells $100 million of U.S. government securities, what happens to the quantity of money?

The less sensitive to the interest rate are consumption expenditure and investment, the smaller is the shift in the AD curve when the Fed changes the federal funds rate.

Which of the following is one of the Fed's policy goals?

If the Fed is concerned with inflation it will the federal funds rate in order to aggregate demand.

What is the effect of lowering the interest rate on net exports? Explain your answer.

The Fed lowers the federal funds rate. A mechanism through which aggregate demand increases is that the lower federal funds rate

The Fed's goals include

To decrease inflation, the Federal Reserve would adjust its target for the federal funds rate upward.