Exam 17: Monetary Policy

Mortgage lenders often resell mortgages in secondary markets.How might this make lenders act differently than if they intended to hold the mortgages themselves?

Rising prices erode the value of money as a ________ and as a ________.

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was the Treasury's move to have the federal government take control of

By the height of the housing bubble in 2005 and early 2006,lenders had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to ________ borrowers with flawed credit histories and ________ borrowers who did not document their incomes.

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.When the Fed announced it did not expect to raise its benchmark interest rate until 2015,it was referring to the

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,then the Federal Reserve would most likely

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

Table 17-7 Year Potential Real GDP Real GDP Price Level 2012 \ 14.2 trillion \ 14.2 trillion 154 2013 14.8 trillion 14.6 trillion 156 -Refer to Table 17-7.Suppose the table above illustrates the values of real and potential GDP and the price level,if the Fed did not vote to change their current policy to be more contractionary or expansionary.Suppose that the Fed used an appropriate policy and was successful in keeping real GDP at potential in 2013.Draw an aggregate demand and supply curve to illustrate your answer.

In response to already low interest rates doing little to stimulate the economy,the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low.This policy is known as

Most of the pressure for a monetary growth rule has disappeared because since 1980

When housing prices fall,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements ________ as many households found it ________ to borrow against the value of their homes.

Give an example of a monetary policy target.Explain why the Fed uses policy targets.

If money demand is extremely sensitive to changes in the interest rate,the money demand curve becomes almost horizontal.If the Fed expands the money supply under these circumstances,then the interest rate will

The monetary policy target the Federal Reserve focuses primarily on today is

Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market purchase of Treasury securities.

Figure 17-1 -Refer to Figure 17-1.In the figure above,the money demand curve would move from Money demand₁ to Money demand₂ if

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.

Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

When housing prices ________ as they did beginning in 2006 following the housing market bubble,most banks and other lenders tightened the requirement for borrowers,making it ________ for potential home buyers to obtain mortgages.

Hovnanain Enterprises,a residential home builder based in New Jersey,did well during the mid-2000s but did not do so well in during and immediately after the recession of 2007-2009.The reason for this is