Exam 14: Monetary Policy

Why does the Fed pursue price stability as its ultimate goal?

The Peopleʹs Bank of China announced that it was lowering by 1.08 percentage points the one -year lending rate in response to the slowdown in the Chinese economy. This rate is the Chinese equivalent of the federal funds rate in the United States. Other things remaining the same, there will be __________in the exchange rate, __________in imports and__________ in exports.

When the federal funds interest rate is 6 percent, the quantity of reserves demanded is $100 billion. If the quantity of reserves is actually $110 billion, then the

The Taylor Rule states that the

In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Bernanke, Chairman of the Federal Reserve stated that ʺpolicy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.ʺ If all the banks enacted the policy simultaneously, the U.S. interest rate differential would And so the U.S. exchange rate would .

If the Fed sells bonds in the open market, net exports will decrease.

-The figure above shows the demand for money in Kiteland. a) If the Kiteland Central Bank has set the quantity of money so that the equilibrium interest rate is 4 percent, draw the supply of money curve. b) Suppose that Kitelandʹs Central Bank wants to raise the interest rate by 1 percentage point. By how much must it change the quantity of real money? c) In order to change the quantity of money to raise the interest rate by one percentage point, if the Central Bank uses an open market operation, does it make an open market purchase or an open market sale? Explain your answer.

If the Fed lowers the federal funds rate, aggregate demand decreases.

An inflation rate targeting rule

Explain how the Fedʹs response to a recession works its through the economy to ultimately affecting real GDP and the price level.

Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should

Which of the following bodies are responsible for the conduct of monetary policy?

The output gap is the

Which of the following describes the chain of events the Fed uses to fight recession?

If the Fed wants to raise the federal funds rate it will

If the Federal Reserve lowers the Federal funds rate,

In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Bernanke, Chairman of the Federal Reserve stated that ʺpolicy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.ʺ If all the banks enacted the policy simultaneously, which of the following expenditure components would increase in the United States? i. exports ii. consumption iii. investment

When the Fed lowers the federal funds rate, the U.S. dollar __________on the foreign exchange market and __________.

The Federal Reserve monetary policy goals of maximum employment means

A decrease in the federal funds rate leads to