Exam 14: Monetary Policy

In the short run, a decrease in the federal funds rate by the Fed

-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD₀ to AD₂. If the Fed wants to offset this change, it would____________

Open market operations by the Fed lead to

When the Fed purchases U.S. government securities in the open market, the federal funds falls.)

ʺAs the Fed Chases Inflation, Critics Shout, ʹFaster!ʹ ʺFor weeks, the Fed has broadcast its intention to raise interest rates glacially.ʺ The Fed was moving slowly, according to an economist because ʺ... the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check.ʺ The Fed, recognizing that the economy was improving stated it planned to ʺrespond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.ʺ Other economists disagree with the Fedʹs restrained policy as a ʺmistakeʺ Www.nytimes, 7/1/2004 The Fedʹs policy will the quantity of money and the supply of loanable funds.

The core inflation rate is more volatile than the total CPI inflation rate.)

If the U.S. interest rate __________rises, the exchange rate and net exports __________.

When the Federal Reserve increases the Federal funds rate, the U.S. interest rate differential__________ and the U.S. exchange rate__________ .

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 In its attempt to change real GDP, which of following sequences correctly describes the transmission of RBIʹs monetary policy? i. the real interest rate falls ii. the money supply increases iii. bank reserves increase iv. supply of loanable funds increases v. aggregate demand increases

During the financial crisis of 2008-2009, the Fed was concerned about

Suppose the economy is in a recession and the Fed lowers the federal funds rate. Then

-The figure above shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market purchase of government securities that changes the quantity of reserves by $100 billion, then the federal funds rate will ___________.

A decrease in the federal funds rate

If the Fed increases the quantity of reserves, a new equilibrium is reached by a

In the aggregate supply-aggregate demand model, raising the federal funds rate initially

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?

If the Fed carries out an open market operation and sells U.S. government securities, the federal funds rate falls and the quantity of money increases.

The Taylor Rule maintains that the Fed should set the growth rate of the quantity of money equal to the growth rate of real GDP.

If the Federal Reserve decreases the Federal funds rate, other short-term interest rates__________ and the exchange rate __________.

Assume the Fed is concerned with a possible recession so it wants to lower the interest rate. How does the Fed lower the interest rate in the short run?