Exam 26: Monetary Policy

When the Fed sells a security to a financial firm and the Fed agrees to buy back the security the next day, the transaction is known as

Most of the pressure for a monetary growth rule has disappeared because since 1980

Lowering the interest rate will

Write out the expression for the Taylor rule. Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.

Most economists believe that the best monetary policy target is

The Taylor rule accurately predicted the changes in the federal funds target during the period

The leader of the monetarist school and major proponent of a monetary growth rule was

What actions should the Fed take if it believes the economy is about to fall into recession?

Figure 26-7 -Refer to Figure 26-7. Suppose the economy is in a recession and no policy is pursued. Using the basic AD-AS model in the figure above, this situation would be depicted as a movement from

Figure 26-4 -Refer to Figure 26-4. In the figure above, a movement from point A to point B would be caused by

When the Federal Reserve increases the money supply, people spend more because they now have more money.

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

With the federal funds rate near zero and the economy still struggling, in response to already low interest rates doing little to stimulate the economy, the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low. This policy is known as

The dynamic aggregate demand and aggregate supply model accounts for the price level rising every year.

The federal funds rate is

To reassure investors who were unwilling to buy mortgages in the secondary market, the U.S. Congress used two government sponsored enterprises, Fannie Mae and Freddie Mac, to stand between investors and banks that grant mortgages. Fannie Mae and Freddie Mac

Under the monetary growth rule proposed by the monetarists, the money supply would grow each year at a constant rate equal to the long-run rate of growth of

Figure 26-5 -Refer to Figure 26-5. In the figure above, the movement from point A to point B in the money market would be caused by

Figure 26-1 -Refer to Figure 26-1. In the figure above, the money demand curve would move from Money demand₁ to Money demand₂ if

Suppose the equilibrium real federal funds rate is 3 percent, the target rate of inflation is 3 percent, the current inflation rate is 1 percent, and real GDP is 8 percent below 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