Exam 17: Monetary Policy

Table 17-8 Year Potential Real GDP Real GDP Price Level 2013 \ 13.5 trillion \ 13.5 trillion 142 2014 14.0 trillion 14.4 trillion 150 -Refer to Table 17-8.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2014 if the Federal Reserve does not use monetary policy: a.If the Fed wants to keep real GDP at its potential level in 2014,should it use an expansionary policy or a contractionary policy? Should the trading desk buy T-bills or sell them? b.Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2014.State whether each of the following will be higher or lower than if the Fed had taken no action: (i) Real GDP (ii) Full-employment real GDP (iii) The inflation rate (iv) The unemployment rate c.Draw an aggregate demand and aggregate supply graph to illustrate your answer.Be sure that your graph contains LRAS curves for 2013 and 2014; SRAS curves 2013 and 2014; AD curve for 2013 and 2014,with and without monetary policy actions; and equilibrium real GDP and the price level in 2014 with and without policy.

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

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

Expansionary monetary policy refers to the Fed's increasing the money supply and increasing interest rates to increase real GDP.

Monetary policy refers to the actions the Federal Reserve takes to manage

An increase in the price level causes

Present two arguments as to why the Fed should adopt inflation targeting as a framework for monetary policy.

An increase in the interest rate causes

The money market model is concerned with ________ and the loanable funds market model is concerned with ________.

When the Fed increases the money supply

What is a mortgage? What were the important developments in the mortgage market during the years after 1970?

Table 17-3 Year Potential Real GDP Real GDP Price Level 2014 \ 14.0 trillion \ 14.0 trillion 150 2015 14.5 trillion 14.8 trillion 154 -Refer to Table 17-3.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy.If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2015,which of the following will be lower than if the Fed had taken no action?

An advantage of the personal consumption expenditures price index (PCE)over the Consumer Price Index (CPI)as a measure of inflation is that the PCE

The money demand curve has a

Inflation targeting,typically,has been accompanied by lower inflation.

Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by a decrease in spending,as in the 2001 recession,than in a recession caused by an increase in oil prices,as in the 1974-75 recession?

In the Taylor rule,does the target for the federal funds rate respond differently for a recession caused by a decrease in aggregate demand and for a recession caused by a decrease in short-run aggregate supply? Explain whether there is or is not a difference in how the target for the federal funds rate changes.

Contractionary monetary policy causes

The Fed uses a "core" price index,one that excludes food and energy prices to measure inflation.It does so because

If the probability of losing your job remains ________,a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time.