Exam 17: Monetary Policy

Suppose the Federal Reserve lowers the federal funds rate.Put the following changes in order in which they occur, starting with the changes that take place almost immediately and ending with the changes that may occur up to a year afterwards: i. quantity of money increases Ii) quantity of reserves increases Iii) aggregate demand increases Iv) the long-term real interest rate falls

-The economy is at the equilibrium shown as point a in the above figure.To restore the economy to potential GDP, the Fed should

If the Fed lowers the federal funds rate, which of the following will NOT happen?

When the Fed lowers the federal funds rate, the quantity of money ________ and the supply of loanable funds ________.

When the Fed lowers the federal funds rate, which of the following economic variables responds most rapidly?

Which monetary policy rule needs a stable demand for money to work well?

The federal funds rate is

In the short run, when the Fed raises the federal funds rate,

Which of the following is a monetary policy goal? i. keeping the inflation rate low ii. attaining maximum employment iii. keeping the long-term interest rate at a moderate level

When would the Fed want to carry out a monetary policy that decreases aggregate demand?

Explain how the Fed's response to inflation works its through the economy to ultimately affecting real GDP and the price level.

Maximum employment and moderate long-term interest rates are best achieved with

The monetary policy instrument the Federal Reserve choose to use is the

Describe the main difference between the core inflation rate and the PCE inflation rate.

A change in monetary policy affects

In a recession, the Fed's monetary policy aims to ________ the real interest rate, ________ aggregate demand, and ________ aggregate supply.

The figure above shows the market for reserves. -To shift the RS curve rightward as illustrated, the Fed has ________ government securities in the open market.The Fed will undertake this type of policy if it is concerned about ________.

When there is a threat of inflation in the economy, the Fed can ________ the federal funds rate so to ________ aggregate demand and ________ the price level.

In late 2007, the Fed began a series of cuts in the federal funds rate.Because the core inflation rate was about two percent, the most likely reason for these interest rate cuts was

What is the main difference between an instrument rule and a targeting rule.Be sure to define each.