Exam 14: Monetary Policy

-In the above figure, suppose that the economy is at point D. Which of the following occurs as a result of an open market purchase of government securities by the Fed?

Which of the following is a potential monetary policy instrument for the Fed?

In December, the Bank of England reduced interest rates by another 50 basis points (a basis point is 0.01 percentage point) after it had cut them by 150 basis points in November. But the rate cut may even be larger. Economists "... expect the Monetary Policy Committee [MPC] to cut rates to 2.5 percent,"...while others "...saw a bigger 75 point cut"...or "a 100 basis point move." Reuters, 11/27/2008 In order to ________, the Bank of England's rate cut must ________.

The Taylor rule uses three variables to determine the target for the federal funds rate. Which of the following is NOT one of those variables?

When the Fed lowers the federal funds rate, the U.S. dollar ________ on the foreign exchange market and ________.

Which of the following is one of the Fed's policy goals?

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, which of the following expenditure components would increase in the United States? I. exports II. consumption III. investment

Assume the Fed is concerned with a possible recession so it wants to lower the interest rate. How does the Fed lower the interest rate in the short run?

"As the Fed Chases Inflation, Critics Shout, 'Faster!'" "For weeks, the Fed has broadcast its intention to raise interest rates glacially." The Fed was moving slowly, according to an economist because "...the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check." The Fed, recognizing that the economy was improving stated it planned to "respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." Other economists disagree with the Fed's restrained policy as a "mistake." Www)nytimes, 7/1/2004 By increasing the federal funds target, the Fed will ________ reserves and ________ the quantity of money.

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

An inflation rate targeting rule

The Fed targets the 30-year bond rate as its monetary policy instrument.

In the economy of Rulewania, the current inflation rate is 6 percent and the Central Bank's target inflation rate is 2 percent. Real GDP exceeds potential GDP by 1 percent, and the long-term growth rate of real GDP is 5 percent. The medium-term growth rate of the velocity of circulation of the monetary base is 2 percent. According to the Taylor rule, what federal funds rate should the Central Bank set?

In order to combat a recession, the Fed will ________ the federal funds rate and thereby ________ the quantity of money.

Monetary policy includes adjustments in ________ so as to change ________.

-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD₀ to AD₂. If the Fed wants to offset this change, it would

Which of the following are NOT Federal Reserve monetary policy goals?

If the Fed lowers the federal funds rate, then

Long-term interest rates fluctuate more than short-term rates.

If the Fed is concerned with recession it will ________ the federal funds rate in order to ________ aggregate demand.