Exam 15: Monetary Policy

Which one event does NOT decrease the demand for money?

Use the following to answer questions: Figure: Monetary Policy III -(Figure: Monetary Policy III) Refer to Figure: Monetary Policy III. Expansionary economic policy will lead to an equilibrium GDP of:

The Federal Open Market Committee has decided that the federal funds rate should be 2% rather than the current rate of 1.5%. The appropriate open market action is to _____ Treasury bills to _____ money _____.

If the economy is in a recession and real GDP decreases, the demand for money will shift to the left.

The short-run aggregate supply curve is _____, and the long-run aggregate supply curve is _____.

Use the following to answer questions: Figure: Monetary Policy I -(Figure: Monetary Policy I) Refer to Figure: Monetary Policy I. If the economy is initially in equilibrium at E₂ and the central bank chooses to sell Treasury bills:

To expand the money supply, the Federal Reserve would have to:

In the long run, changes in the money supply _____ the aggregate price level and _____ aggregate output.

The federal funds rate is the interest rate on _____, and it is influenced by the _____.

Use the following to answer questions: Figure: Output Gap -(Figure: Output Gap) Refer to Figure: Output Gap. If the economy is at Y₂ because of contractionary monetary policy and no further policy is implemented, in the long run nominal wages will _____ and shift the short-run aggregate supply curve to the _____, which will _____ real output.

Changes in _____ will NOT shift the money demand curve.

The idea that the interest rate is determined by the supply and demand for money is known as:

Other things equal, if there is an excess demand for money, the interest rate may rise.

Generally, the more liquid an asset is, the:

If the economy is at potential output and the Fed increases the money supply, the aggregate demand will likely decrease in the short run.

According to the liquidity preference model, if the Federal Reserve increases the money supply, the equilibrium interest rate _____, and this leads to a(n) _____ in the quantity demanded of nonmonetary interest-bearing financial assets.

An increase in the money supply _____ the interest rate in the short run but _____ the interest rate in the long run.

Use the following to answer questions: Figure: A Money Market -(Figure: A Money Market) Refer to Figure: A Money Market. If the current interest rate is r₁, the interest rate will _____ because there is a _____ of money in the market.

Scenario: Taylor Rule Suppose that the Federal Reserve is following the Taylor rule, which takes both inflation and business cycles into account when setting the federal funds rate. Also suppose that the inflation rate in the economy is 3% and the unemployment gap is -2%. In this case, the Federal Reserve will set the federal funds rate at _____%.

If the economy is at potential output and the Fed increases the money supply, in the short run the likely result will be a(n) _____ in investment and a(n) _____ in consumption.