Exam 14: Monetary Policy

Which of the following bodies are responsible for the conduct of monetary policy?

When the Fed lowers the federal funds rate, aggregate demand

Former Federal Reserve Chairman Ben Bernanke has defined price stability as occurring when the core inflation is

If the Fed wished to eliminate an inflationary gap, which of the following would be an appropriate policy?

If the Fed carries out an open market operation to buy U.S. government securities, if the federal funds rate stays in the corridor the federal funds rate ________ and the quantity of reserves ________.

Suppose the economy is in recession. Write a letter to the brand-new chairman of the Federal Reserve suggesting how the Fed might help end the recession. Be sure to explain how a change in monetary policy will affect economic activity.

In an effort to address the troubled economy, ..."For the ninth time in just over a year, the Federal Reserve is expected to cut interest rates, quite possibly its last reduction in this downturn." Rates have not been this low "... since 2003, when the economy was growing at a snail's pace." www.csmonitor.com, 10/28/2008 The Fed's rate cuts will ________ bank reserves and ________.

-In the above figure, suppose that the economy was initially in an equilibrium at point D. Where would the economy move if the Fed makes an open market purchase of government securities?

-The figure above shows the demand for money in Kiteland. a) If the Kiteland Central Bank has set the quantity of money so that the equilibrium interest rate is 4 percent, draw the supply of money curve. b) Suppose that Kiteland's Central Bank wants to raise the interest rate by 1 percentage point. By how much must it change the quantity of real money? c) In order to change the quantity of money to raise the interest rate by one percentage point, if the Central Bank uses an open market operation, does it make an open market purchase or an open market sale? Explain your answer.

If the federal funds rate stays in the corridor and the Fed wants to raise the federal funds rate, it needs to

When the Federal Reserve increases the Federal funds rate, the U.S. interest rate differential ________ and the U.S. exchange rate ________.

Monetary policy affects real GDP by

In the aggregate demand/aggregate supply framework, lowering the federal funds rate has what short-run effects on real GDP?

In the short run, the Federal Reserve faces a tradeoff between

If the Fed wants to decrease the quantity of money, it can

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 Other things remaining the same, there will be ________ in the exchange rate, ________ in imports and ________ in exports.

In 2012, former Fed Chairman Ben Bernanke said that the Fed's policy had raised real GDP by almost 3 percent. Mr. Bernanke believed that the Fed's policy of keeping the federal funds rate ________ had resulted in an increase in ________.

Which of the following is a problem in pursuing monetary policy?

Federal Reserve open market operations directly influence

One problem with the ripple effect from the Fed's monetary policy is