Exam 16: Interest Rates and Monetary Policy

Suppose that, for every 1-percentage-point decline of the discount rate, commercial banks collectively borrow an additional $2 billion from Federal Reserve Banks. Also assume that the reserve ratio is 20 percent. If the Fed increases the discount rate from 4.0 percent to 4)25 percent, bank reserves will

If consumers and businesses are especially pessimistic, as in the Great Recession of 2007-2009, and do not want to borrow money from banks, then the use of an expansionary money policy is likened to

What is one of the advantages of monetary policy over fiscal policy?

A newspaper headline reads, "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to

According to the Taylor rule, if the unemployment rate falls by 1 percent below the full-employment rate, the Fed should lower their interest rate target by one-half a percentage points.

The effects of expansionary monetary policy are strengthened by a liquidity trap.

An expansionary monetary policy increases the money supply, lowers interest rates, and increases aggregate demand.

Which of the following varies directly with the interest rate?

Differentiate between expansionary and restrictive monetary policies.

Before the financial crisis of 2008, if the Fed wanted to lower the Federal funds rate, it

The Fed's response to the zero lower bound problem was quantitative easing (or "QE"), where the Fed buys large amounts of bonds in order to

Explain two strengths of monetary policy for achieving economic stability.

One of the strengths of monetary policy relative to fiscal policy is that monetary policy

Big Bucks Bank currently holds $20 million in excess reserves. If the Fed increases the rate of interest it pays on excess reserves held at the Fed, we would expect Big Bucks Bank to

Which of the following is not a tool of monetary policy?

Which one of the following is a tool of monetary policy often used by the Fed for altering the reserves of commercial banks?

Which of the following is not a reason why after the Great Recession, when the recovery turned out to be very weak, economic policy in the U.S. had to turn forcefully toward fiscal policy?

Changes in interest rates, ceteris paribus, cause a shift in