Exam 15: Monetary Policy

Monetary policy could be procyclical if the Federal Reserve

Using the money demand and money supply model,an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

Monetary policy refers to the actions the

If the Federal Reserve targets the money supply,and the money demand curve shifts to the left,then the Fed

In reality,the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

The Fed has adopted an interest rate target for most of the time since World War II.

Refer to Figure 26-5.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

An increase in the demand for Treasury bills will

Figure 26-2 -Refer to Figure 26-2.In the figure above,when the money supply shifts from MS₁ to MS₂,at the interest rate of 3 percent households and firms will

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?

Use a graph to show the effects of an expansionary monetary policy moving an economy out of recession and to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

Refer to Figure 26-5.Suppose the economy is in short-run equilibrium above potential GDP,the unemployment rate is very low,and wages and prices are rising.Using the static AD-AS model in the figure above,the correct Fed policy for this situation would be depicted as a movement from

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

An increase in real GDP can shift

Suppose that the Federal Reserve Open Market Committee adheres to the ideas expressed by ________.If the economy moves into a recession,the Fed would recommend that the federal funds target rate decrease as long as the inflation rate did not rise above the publicly announced goal for inflation.

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 sale of Treasury securities.

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

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

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

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