Exam 14: Monetary Policy

Describe how open market operations change the quantity of money.

In an effort to address the troubled economy, ...ʺFor the ninth time in just over a year, the Federal Reserve is expected to cut interest rates, quite possibly its last reduction in this downturn.ʺ Rates have not been this low ʺ... since 2003, when the economy was growing at a snailʹs pace.ʺ These rate cuts are designed to

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. This policy__________ the supply of loanable funds. As a result, the long -term real interest rate , and planned expenditures__________ .

In the short run, a rise in the federal funds rate____________ the price level and____________ real GDP.

An increase in the quantity of reserves leads to a

When the Fed raises the federal funds rate, in the foreign exchange market people__________ dollars and the price of the dollar __________on the foreign exchange market.

An open market purchase of government securities by the Federal Reserve shifts the___________ reserves curve___________ .

A positive output gap is an inflationary gap.

The Federal Reserve fights inflation via open market operations, the supply of reserves curve shifts____________ and the supply of money curve shifts ____________.

Suppose the equilibrium real interest rate is 2 percent per year, inflation is 2.5 percent and the output gap is 1 percent. Using the Taylor rule, what is the federal funds rate?

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

The monetary policy instrument the Federal Reserve choose to use is the

If the Fed carries out an open market operation to buy U.S. government securities, the federal funds rate ___________and the quantity of reserves___________ .

When the Fed lowers the federal funds rate, aggregate demand

When the economy is in recession, does the Fed want to raise the interest rate so as to increase aggregate demand and increase real GDP? Explain your answer.

If the interest rate on Treasury bills is higher than the federal funds rate, the quantity of overnight loans supplied___________ and the ___________for Treasury bills increases .

Which of the following are NOT Federal Reserve monetary policy goals?

-In the above figure, suppose the economy is at point D. If the Fed eases to fight the recession, the economy will move to

Long-term interest rates fluctuate more than short-term rates.

In the short run, monetary policy can