Exam 29: Monetary Policy

The explicit functions given to the Fed by the Congress include all of the following except:

In the fall of 2008, the Federal Reserve reduced its target for the federal funds rate dramatically. The Fed likely made this decision because it believed:

If the demand for bank loans suddenly declines, a defensive action on the part of the Fed to keep the federal funds rate constant would take the form of open market bond:

Suppose that the Fed has currently set the reserve requirement at 10%.Further suppose that banks do not hold any excess reserves. (a)How much money can the banking system support if it currently has $1,000,000 in reserves? (b)If the Fed wanted to cause the money supply to expand,how could it use the reserve requirement to achieve its goal? Give an example.

If the Fed simultaneously raises the discount rate and the reserve requirement, the money supply will:

Using the Taylor rule, if inflation is 1 percent, desired inflation is 2 percent, and output is 2 percentage points below potential, the Fed should target a federal funds rate of:

The monetary base is comprised of:

Refer to the graph shown. Suppose the economy is initially at A but then the Fed adopts an expansionary monetary policy. The initial effect of this policy will be pressure to move the economy to:

If the Fed wants a tighter monetary policy, it might:

Which of the following Fed actions increases the money supply?

When the Fed reduces the discount rate, this sends a signal to banks that the Fed wants:

Other things equal, a rise in interest rates can be expected to:

Suppose the money multiplier in the United States is 3. Suppose further that if the Fed decreased the discount rate by 1 percentage point, banks change their reserves by 300. To increase the money supply by 2,700 the Fed should:

Suppose the money multiplier in the United States is 3. Suppose further that if the Fed increases the discount rate by 1 percentage point, banks initially change their reserves by 400. To reduce the money supply by 4,200 the Fed should:

Would you expect the Fed to increase the rate it pays on excess reserves when it is decreasing the Fed Funds rate target?

An increase in the federal funds rate could be caused by:

The three tools of monetary policy are open market operations, setting prices, and setting the velocity of money.

Refer to the graph shown. Monetary policy that shifts the AD curve from AD₀ to AD₂ is

What tool of monetary policy would the Fed most likely use to increase the federal funds rate from 1 percent to 1.25 percent?

Suppose that investment is very responsive to interest rates, so that even a small change in interest rates has a substantial effect on investment. In this case, expansionary monetary policy that results in a modest drop in interest rates will: