Exam 14: The Federal Reserve and Monetary Policy

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

What three factors affect the demand for money?

To increase the level of output, the Fed should conduct an open market sale.

The supply of money is determined by the Federal Reserve and is dependent on the demand for money.

Recall the Application about the possible link between the value of the U.S. dollar and the worldwide increase in commodity prices to answer the following question(s). Starting in the summer of 2010, there was a rise in prices of commodities such as oil and food worldwide. Some economists suggested that monetary policy in the United States was the cause of the worldwide commodity boom. -According to this Application, some economists noticed that the change in the value of the U.S. dollar was largely due to the change in interest rates, and the change in interest rates occurred because of the Fed's use of ________ to further stimulate the economy.

In practice, the Federal Reserve keeps the discount rate close to the ________ rate in order to avoid large swings in borrowed reserves by banks.

The federal funds rate is the interest rate that

If the Fed wished to decrease interest rates, it could

How would the Fed's reduction of the reserve ratio requirement affect the money supply?

The outside lags related to monetary policy tend to be quite long.

Recall the Application about the effectiveness of committees in making decisions about monetary policy to answer the following question(s). Former Fed vice-chairman Alan Blinder developed an experiment to see whether individuals or groups make better decisions, and who makes them more rapidly. The experiment tested how quickly individuals and groups could distinguish changes in underlying trends from random events, such as if a one-month unemployment rate increase was a temporary aberration or the possible beginning of a recession, and their decisions as to changing monetary policy as a reaction to the events. -Recall the Application. The experiment conducted by Blinder showed that the actual process of having committee meetings and discussions

Recall the Application about the effectiveness of committees in making decisions about monetary policy to answer the following question(s). Former Fed vice-chairman Alan Blinder developed an experiment to see whether individuals or groups make better decisions, and who makes them more rapidly. The experiment tested how quickly individuals and groups could distinguish changes in underlying trends from random events, such as if a one-month unemployment rate increase was a temporary aberration or the possible beginning of a recession, and their decisions as to changing monetary policy as a reaction to the events. -Recall the Application. If the Federal Reserve was making a decision on changing interest rates

Interest rates will increase if the Fed conducts an open market purchase.

The quantity of money demanded will increase as interest rates increase.

What is the "good news" and the "bad news" about a higher value of the U.S. dollar?

An open market ________ by the Fed decreases the money supply, which leads to ________ interest rates and a fall in investment spending.

The Fed can directly control the federal funds rate.

Both increases in the price level and increases in real GDP will decrease the demand for money.

Higher U.S. interest rates cause the value of the dollar to

A decrease in the value of a currency is called a(n)