Exam 17: Monetary Policy

Between September 2007 and March 2008 there was a substantial reduction in the demand for housing.What action did the Fed take in response to the reduction in the demand for housing?

Figure 17-11 -Refer to Figure 17-11.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,the Federal Reserve would most likely

If the Fed pursues expansionary monetary policy,

Which of the following is true?

The larger the fraction of an investment financed by borrowing

Table 17-4 Year Potential Real GDP Real GDP Price Level 2014 \ 15.1 trillion \ 15.1 trillion 150 2015 15.4 trillion 15.3 trillion 153 -Refer to Table 17-4.Suppose the following table illustrates the values of real and potential GDP and the price level,if the Fed does not vote to change their current policy to be more contractionary or expansionary.If the Fed wants to keep real GDP at its potential level in 2015,should the Fed use a contractionary or expansionary policy? How should it conduct open market operations to achieve its goal?

The leader of the monetarist school and major proponent of a monetary growth rule was

Article Summary Concerned about slow economic growth, the Fed announced in September 2013 that it would postpone winding down its $85 billion a month bond purchasing program which has been a key component of its monetary stimulus package. Fed Chairman Ben Bernanke would not commit to a timeline for reducing the bond purchases, stating that the program was "not on a preset course." The Fed's forecasts of economic growth have been lowered for 2013 and 2014, and the Fed does not expect to raise interest rates until 2015. Since late 2008, the Fed has held its benchmark interest rate near zero, while its balance sheet has tripled to more than $3.6 trillion. The Fed also stated that so long as inflation did not become a threat, it would not raise interest rates until the unemployment rate dropped to 6.5 percent. At the time of the announcement, the unemployment rate was 7.3 percent. -Refer to the Article Summary.The Fed announced that it would postpone winding down its $85 billion per month bond purchasing program.The Fed's purchasing of long-term treasury bonds and other government-backed securities in an effort to keep long-term interest rates low is a strategy known as

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

The Fed

Rising nominal GDP will increase the demand for money and short-term interest rates.

Figure 17-7 -Refer to Figure 17-7.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

If the Fed buys Treasury bills,this will shift the

The consumer price index (CPI),the personal consumption expenditures price index (PCE),and the core PCE have over the last 10 years

The situation in which short-term interest rates are pushed to zero,leaving the central bank unable to lower them further is known as

The argument advanced by Milton Friedman for adopting a monetary growth rule is that

Use the money demand and money supply model to show the money market in equilibrium with an interest rate of 5 percent and the quantity of money of $800 billion.Suppose the Federal Reserve increases the money supply to $850 billion.At the previous equilibrium interest rate of 5 percent,will households and firms now be holding more money or less money than they want to hold,and will they be buying or selling short-term financial assets? At the new equilibrium interest rate,households and firms will desire to hold the entire $850 billion of the money supply.What causes households and firms to want to hold the additional $50 billion of the money supply?

When the Federal Reserve increases the money supply,people spend more because interest rates fall.

With the Troubled Asset Relief Program (TARP),the Treasury provided funds to banks in exchange for stock.

Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?