Exam 14: Monetary Policy

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following changes immediately? The

When the Fed raises the federal funds rate, other

Achieving the goal of "moderate long-term interest rates" means that the Fed needs to keep

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 "interest rates" the Fed is cutting is the

Which of the following is the most important Federal Reserve monetary policy goal?

If the Fed lowers the federal funds rate, aggregate demand decreases.

The Fed lowers the federal funds rate. A mechanism through which aggregate demand increases is that the lower federal funds rate

-The figure above shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market purchase of government securities that changes the quantity of reserves by $100 billion and the federal funds rate remains within the corridor, then the federal funds rate will

In the short run, the Fed's actions to fight inflation shift the

When the Federal Reserve lowers the federal funds rate, in the short run

Suppose in the money market the equilibrium interest rate is 5 percent and quantity of money demanded and supplied are both equal to $2 trillion dollars. If the Fed increases the quantity of money, what is the effect on the interest rate?

The central bank of Cobra sells securities in an open market operation. In the short run, aggregate demand ________, real GDP ________, and the price level ________.

During the financial crisis of 2008-2009, the Fed's actions to supply reserves to the banking system was an attempt to

Open market operations by the Fed lead to

The output gap can be used to estimate the extent to which the Fed misses its goal of

Suppose that initially real GDP equals potential GDP. Then an increase in aggregate demand occurs. According to the Taylor rule, the Fed should ________ the federal funds rate by ________ government securities in the open market.

In December, the Bank of England reduced interest rates by another 50 basis points after points (a basis point is 0.01 percentage point) 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." Data show that "... inflation staged its biggest drop since records began ...potentially opening the door to even bigger cuts." Reuters, 11/27/2008 If the Bank's policies given above can ________ the real long-term interest rate,the Bank will be able to ________.

When the economy is in recession, does the Fed want to raise the interest rate so as to increase aggregate demand and increase real GDP? Explain your answer.

In an AS/AD figure, lowering the federal funds rate initially shifts the

In the short run, the Fed's actions to fight an inflationary gap shift the