Exam 14: Monetary Policy

-In the above figure, suppose point C is the original equilibrium. If the Fed hikes the federal funds rate, the new equilibrium is given by point

When the Fed raises the federal funds rate,

In the short run, a rise in the federal funds rate shifts the

Federal Reserve open market operations directly influence

If the Fed follows the Taylor rule and the economy goes into a recession, the Fed would

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

Suppose the economy is in recession. Write a letter to the brand -new chairman of the Federal Reserve suggesting how the Fed might help end the recession. Be sure to explain how a change in monetary policy will affect economic activity.

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

-In the above figure, suppose the economy is at point B. Which of the following policy options for the Fed will move the economy toward its LAS?

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

Does an open market operation in which the Fed buys securities from the general public decrease or increase the banking systemʹs reserves?

In November 2008, the Reserve Bank of India RBI) lowered its ʺrepoʺ rate, the rate at which it lends to banks, from 8 percent to 7.5 percent. Only two weeks earlier, it had lowered the rate from 9 percent to 8 percent. The Economist, 11/6/2008 The Reserve Bank of India is lowering its rates to fight

If the aggregate demand curve shifts rightward following a decrease in the federal funds rate, what can be concluded if the short-run aggregate supply curve is rather steep?

In December, the Bank of England reduced interest rates by another 50 basis points after points a basis point is 0.01 percentage point) it had cut them by 150 basis points in November. But the rate cut may even be larger. Economists ʺ... expect the Monetary Policy Committee [MPC] to cut rates to 2.5 percent,ʺ...while others ʺ...saw a bigger 75 point cutʺ...or ʺa 100 basis point move.ʺ Data show that ʺ... inflation staged its biggest drop since records began ...potentially opening the door to even bigger cuts.ʺ Reuters, 11/27/2008 If the Bankʹs policies given above can__________ the real long -term interest rate,the Bank will be able to__________

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following takes the longest to change ?

The Federal Reserve fights recession via open market operations, the supply of reserves curve shifts __________and the supply of money curve shifts __________.