Exam 17: Monetary Policy

-In the above figure, is the Fed likely to be afraid that inflation will occur or that a recession will occur? Discuss the appropriate monetary policy that should be made to restore the economy to potential GDP.

Explain monetary policy goals and discuss any goal conflicts in the long run and the short run.

If the Federal Reserve uses open market operations to offset a recession, the Fed ________ government securities in order to ________ the federal funds rate.

If the Fed's policies aim to increase aggregate demand, the Fed must fear

When the economy is in a recession, the Fed can ________ the federal funds rate, which ________ aggregate demand and ________ real GDP.

When the Federal Reserve increases the federal funds rate, bank loans ________, the supply of loanable funds ________, and the real interest rate ________.

To pursue its monetary policy goals, the Fed could use i. a gold price targeting rule. Ii) a money targeting rule. Iii) an inflation targeting rule.

The Taylor rule is an example of

In the market for bank reserves, if the federal funds rate target is higher than the federal funds rate, the Fed will take action to ________ reserves.

If the Federal Reserve lowers the Federal funds rate,

As firms expect future profits to increase, they increase their investment.As a result, real GDP rises above potential GDP.If the Fed followed Friedman's k-percent rule, the Fed would

The FOMC is concerned about inflation and has ________ the federal funds rate. Due to substitution effects, other ________ interest rates will ________ almost immediately.

Distinguish between monetary policy instruments and goals.

In the short run, to decrease the interest rate the Federal Reserve ________ the quantity of money by ________ government securities.

Under a gold standard, the central bank is willing to

The Fed is concerned about inflation.Its policy will ________ U.S.short-term interest rates and, in the foreign exchange market, lead to the value of the U.S.dollar ________.

The output gap is the

The Fed raises the federal funds rate.Which of the following changes takes the longest time before it occurs?

If the Fed wants to fight recession, it will ________ the federal funds rate in order to ________.

Monetary policy goals include i. maximum employment. Ii) stable prices. Iii) moderate long-term interest rates.