Exam 14: The Federal Reserve and Monetary Policy

The Fed can directly control all of the following EXCEPT

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

When the Federal Reserve buys bonds on the open market, it decreases the money supply.

Explain what happens to the money supply, interest rates, investment spending and GDP when the Fed makes open market bond purchases.

A decrease in the level of real GDP in the economy leads to

To increase the money supply using the reserve requirements, what would the Fed typically do?

A decrease in the reserve requirement

An inside lag is

Based on the model of the money market, when real GDP increases, the equilibrium interest rate should

If a bond was to pay off one year from now for $840 and was purchased for $800, what is the interest rate?

The Fed can change the money supply by buying or selling long-term Treasury bonds. Purchasing long-term securities is commonly called

An increase in the money supply will appreciate a country's currency.

When the Federal Reserve increases interest rates, investment spending ________ and GDP ________.

An increase in the reserve requirement

If your assets are highly liquid, this means you can make transactions on short notice.

From time to time, the Federal Reserve sells various quantities of government bonds to the private sector through a process called

By raising the discount rate, the Federal Reserve ________ banks from borrowing more reserves.

The ________ determines the supply of money.

Generally, when the Federal Reserve lowers interest rates, investment spending ________ and GDP ________.

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, Janet L. Yellen, the Vice-Chair of the Board of Governors, believes that ________ in worldwide demand and ________ of supply were the primary cause of the worldwide increase in commodity prices.