Exam 13: Monetary Policy

The quantity of excess reserves in the banking system and the federal funds rate can serve as short-run operating targets for the FOMC and help it perform the open market operation.

Scenario 13.1?Assume the following conditions hold. Now the Federal Reserve engages in an open market operation by purchasing $1 billion worth of government bonds from private bond dealers, who then deposit the $1 billion in the banks. This acts to lower the equilibrium interest rate by 2 percent. a.At all banks, excess reserves are zero. b.The deposit expansion multiplier is 3. c.The investment spending function is as illustrated in the figure below. -Refer to Scenario 13.1. What is the change in required reserves following the open market operation by the Fed?

The figure given below depicts the equilibrium in the foreign exchange market.?Figure 13.1 -Refer to Figure 13.1. If the exchange rate is fixed at E2 but the free market equilibrium rate is E1 then:

Other things equal, an increase in the general price level causes the money demand function to shift to the left.

Sterilization occurs when a central bank offsets the effects of expansionary monetary policy through foreign exchange market intervention.

Which of the following is the latest short run operating target specified to the New York Fed by the FOMC directives?

If a bond pays a fixed return of $500 a year and the current interest rate has risen from 5 percent to 10 percent, then the bond price must have:

In foreign exchange markets, a U.S. resident who imports New Zealand apples is:

Suppose that the Fed decides to decrease the money supply by 0.87 percent. If the velocity of money is constant, then the quantity theory of money predicts that:

According to the equation of exchange, a contractionary monetary policy must be adopted to offset any decrease in the velocity of money.

The figure given below depicts the equilibrium in the foreign exchange market.?Figure 13.1 -Refer to Figure 13.1. If the current equilibrium exchange rate is E1 what action would the Fed have to take to achieve a target exchange rate of E2?

A decrease in the discount rate:

Which of the following is a function of the Fed?

In the figure given below panel A represents money market equilibrium, panel B represents investment demand, and panel C represents equilibrium real GDP.?Figure 13.3 -Refer to Figure 13.3. Other things equal, if the interest rate is greater than 6 percent, then:

An excess demand for money will result in all the following, except:

-Refer to Table 13.1. Given a reserve requirement of 8 percent, what is the maximum potential increase in the money supply?

The process of buying financial assets to stimulate the economy when the central bank target interest rate is near or at zero and the interest rate cannot be lowered further is called:

Which of the following monetary policies will increase money supply?

When more than one central bank attempts to shift the equilibrium exchange rate, we refer to this as:

The quantity theory of money asserts that: