Exam 14: The Federal Reserve and Monetary Policy

The Fed directly controls long-term interest rates.

An increase in the price level in the economy leads to

If the Federal Reserve conducts an open market sale, the

If the actual interest rate in the money market is higher than the equilibrium interest rate, there would be an excess supply of money.

Explain why "good news for the economy is bad news for bond prices."

What would be a way for the Federal Reserve to stimulate a sluggish economy?

An open market purchase by the Fed causes the value of the dollar to

Which action could the Fed use to decrease the money supply?

The transaction demand for money comes mostly from the fact that

Suppose that the interest rate available to you on a long-term bond is 4 percent. If you hold $1,000 of your wealth in currency instead of in the form of a bond, the annual opportunity cost is

As the Federal Reserve ________ bonds, interest rates fall and the price of bonds ________.

Describe the channels through which an open market purchase of bonds by the Fed affects output in a closed economy.

A decrease in the price level in the economy leads to

Based on the model of the money market, if the Federal Reserve increases the reserve requirement, the equilibrium interest rate should

When the Fed increases the money supply, it leads to lower interest rates.

If a one-year bond is purchased for $700 and the interest rate is 5 percent, what will it pay in one year?

If the quantity of money demanded exceeds the quantity of money supplied, then the

An increase in the discount rate will

Inside lags are

An open market sale of bonds by the Federal Reserve will lead to an increase of reserves in banks.