Exam 26: Monetary Policy

Firms that participate in regular open market transactions with the Federal Reserve are called

Changes in the federal funds rate usually result in

The money demand curve has a negative slope because

Suppose the equilibrium real federal funds rate is 5 percent, the target rate of inflation is 3 percent, the current inflation rate is 5 percent, and real GDP is 4 percent above potential real GDP. If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the federal funds target rate equals

Suppose you buy a house for $250,000. One year later, the market price for the house has fallen to $200,000. What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

If the Federal Reserve targets the money supply, and the money demand curve shifts to the left, then the Fed

Article Summary With global borrowing costs so low, economic analysts are warning that central banks need to be prepared to set negative interest rates during the next economic downturn. Several central banks in Europe set negative interest rates in 2014, as did the Japanese central bank in 2016, in an attempt to spur lending. The global market value of negative-yielding bonds rose to $8.6 trillion in mid-2017 due to low inflation and increased perceptions of geopolitical risk. The current U.S. economic expansion is the third longest since the 19th century, and credit markets are showing signs of reaching a cyclical peak. According to Harvard professor Kenneth Rogoff, low interest rates this late in an economic cycle are unprecedented, noting that the Fed cut interest rates by an average of 5.5 percentage points in the nine recessions since the 1950s, and this would be impossible today without negative interest rates. -Refer to the Article Summary. Implementing a negative interest rate policy, as is discussed in the article summary, would be an example of ________ monetary policy designed to ________ aggregate demand.

If the Fed pursues expansionary monetary policy then

When the Fed embarked on a policy known as quantitative easing, they

Table 26-5 -Refer to Table 26-5. Suppose the table above illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary. Suppose that the Fed uses an appropriate policy and is successful in keeping real GDP at potential in 2019. State whether each of the following will be higher or lower than if the Fed had taken no action: a. Real GDP b. Potential real GDP c. The price level d. The unemployment rate

The Fed seeks to promote stability of financial markets because

Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market purchase of Treasury securities.

If the Fed pursues expansionary monetary policy,

Which of the following describes what the Fed would do to pursue an expansionary monetary policy?

In November 2008, the Fed began its first round of quantitative easing. In total, the Fed conducted ________ rounds of quantitative easing before ending the program in October 2014.

Monetary policy refers to the actions the

The Fed can use expansionary monetary policy to lower interest rates to stimulate aggregate demand.

What is a banking panic, and what role did banking panics play in the decision by Congress to establish the Federal Reserve?

Which of the following will lead to a decrease in the equilibrium interest rate in the economy?

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium. For Year 2, graph aggregate demand, long-run aggregate supply, and short-run aggregate supply such that the condition of the economy will induce the Federal Reserve to conduct an expansionary monetary policy. Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.