Exam 14: Monetary Policy

"When the Fed is concerned with inflation, it buys government securities." Is the previous statement correct or incorrect? Explain your answer.

-To fight a recession the Fed will

If the Fed increases the quantity of reserves, a new equilibrium is reached by a

The Federal Reserve fights recession via open market operations, the supply of loanable funds curve shifts ________ and the aggregate demand curve shifts ________.

If the Fed fears inflation it will undertake an open market ________ of securities, the federal funds rate will ________ and the long-term real interest rate will ________.

-In the above figure, the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD₀ to AD₁. If the Fed wants to offset this change, it would

Which of the following describes the chain of events the Fed uses to fight recession?

What is the effect of lowering the interest rate on net exports? Explain your answer.

"The Bank of Israel lowered its benchmark lending rate by half a percentage point, the fourth cut in seven weeks, as the global financial turmoil slows economic growth and inflation expectations ease." www.bloomberg.com 11/24/2008 The Bank of Israel's actions ________ bank reserves and have the goal of ________ consumption.

In the aggregate supply-aggregate demand model, raising the federal funds rate initially

The President of the United States is also the chairman of the Federal Reserve.

If the Federal Reserve lowers the federal funds rate

The Fed's goals include

An open market sale of government securities by the Federal Reserve shifts the ________ reserves curve ________.

The federal funds rate is the interest rate

Read the following statements and determine if they are true or false. I. The Federal Reserve's monetary policy must be approved by the President of the United States. II. The Federal Reserve Board of Governors meets approximately every six months to review the state of the economy and determine monetary policy.

The People's Bank of China announced that it was lowering by 1.08 percentage points the one-year lending rate in response to the slowdown in the Chinese economy. This rate is the Chinese equivalent of the federal funds rate in the United States. www.nytimes.com, 11/26/2008 This policy ________ the supply of loanable funds. As a result, the long-term real interest rate ________, and planned expenditures ________.

If the Fed wanted to stimulate the economy to limit the effects of a recessionary gap, then it should ________ the federal funds rate in order to ________ the real interest rate and thereby ________ investment.

In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Bernanke, then Chairman of the Federal Reserve, stated that "policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant." If all the banks enacted the policy simultaneously, the U.S. interest rate differential would ________ and so the U.S. exchange rate would ________.

In the short-run, lowering the federal funds rate will shift the ________ and ________ real GDP.