Exam 17: Monetary Policy

If the amount you owe on your house is less than the price of the house,you have

Contractionary monetary policy refers to the Fed's decreasing the money supply and decreasing interest rates to decrease real GDP.

Write out the expression for the Taylor rule.Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.

The relationship between GDP and the money supply has gotten stronger since the 1980s.

Table 17-5 Year Potential Real GDP Real GDP Price Level 2014 \ 14.4 trillion \ 14.4 trillion 144 2015 14.7 trillion 14.5 trillion 146 -Refer to Table 17-5.Suppose the table above 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.Suppose that the Fed uses an appropriate policy and is successful in keeping real GDP at potential in 2015.State whether each of the following will be higher or lower than if the Fed had taken no action: a.Real GDP b.Potential real GDP c.The price level d.The unemployment rate

Which of the following characterizes the Fed's ability to prevent recessions?

A borrower defaults on a loan when he stops making payments on the loan.

The Federal Reserve's two main ________ are the money supply and the interest rate.

Table 17-1 Year Potential Real GDP Real GDP Price Level 2014 \ 14.2 trillion \ 14.2 trillion 145 2015 14.6 trillion 14.5 trillion 147 -Refer to Table 17-1.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2015 if the Fed does not use monetary policy.Which of the following policies makes sense if the Fed wants to keep real GDP at its potential level in 2015?

By the 2000s,investment banks had become significant participants in the secondary market for mortgages.

Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 2 percent,the current inflation rate is 4 percent,and real GDP is 2 percent above potential real GDP.If the weights for the inflation gap and the output gap are both 1/2,then according to the Taylor rule the federal funds target rate equals

An increase in the demand for Treasury bills will

The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is not one of the ways the Fed responded?

Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often

The Fed can directly lower the inflation rate.

If the Fed raises the interest rate,this will ________ inflation and ________ real GDP in the short run.

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

An increase in the interest rate should ________ the demand for dollars and the value of the dollar,and net exports should ________.

Figure 17-10 -Refer to Figure 17-10.In the figure above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

A financial asset is considered a security if