Exam 14: Monetary Policy

In October 2008,central banks around the world coordinated a decrease in interest rates. Ben Bernanke,Chairman of the Federal Reserve stated that "policy makers will remain in close contact,monitor developments closely and stand ready to take additional steps should conditions warrant." If all the banks enacted the policy simultaneously,the U.S.interest rate differential would ________ and so the U.S.exchange rate would ________.

When the Federal Reserve increases the Federal funds rate,

The less sensitive to the interest rate are consumption expenditure and investment,the smaller is the shift in the AD curve when the Fed changes the federal funds rate.

-In the above figure,if the economy is initially at point c,the short-run effect of a hike in the federal funds rate is given by movement from point

In order to combat a recession,the Fed will ________ the federal funds rate thereby ________ the quantity of money.

-In the above figure,if the economy is initially at point d,the short-run effect of a cut in the federal funds rate is given by movement from point

If the Fed wants to fight inflation,it will ________ the federal funds rate,which in the short run shifts the ________.

If the aggregate demand curve shifts rightward following a decrease in the federal funds rate,what can be concluded if the short-run aggregate supply curve is rather steep?

The Taylor Rule maintains that the Fed should set the growth rate of the quantity of money equal to the growth rate of real GDP.

-In the above figure,if the economy is initially at point a,the short-run effect of a cut in the federal funds rate is given by movement from point

If the Fed lowers the federal funds rate,then

In the short run,a rise in the federal funds rate ________ the price level and ________ real GDP.

When the Fed cuts the Federal funds rate,real GDP growth ________ and the inflation rate ________.

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

In an effort to address the troubled economy,..."For the ninth time in just over a year,the Federal Reserve is expected to cut interest rates,quite possibly its last reduction in this downturn." Rates have not been this low "...since 2003,when the economy was growing at a snail's pace." www.csmonitor.com,10/28/2008 These rate cuts are designed to

When the output gap is positive,it represents ________ gap,and when it is negative,it represents ________ gap.

The output gap can be used to estimate the extend to which the Fed misses its goal of

If the Fed wished to eliminate an inflationary gap,which of the following would be an appropriate policy?

"As the Fed Chases Inflation,Critics Shout,'Faster!' "For weeks,the Fed has broadcast its intention to raise interest rates glacially." The Fed was moving slowly,according to an economist because "...the declining price of oil,economic fundamentals,including productivity and global competition,will keep inflation in check." The Fed,recognizing that the economy was improving stated it planned to "respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." Other economists disagree with the Fed's restrained policy as a "mistake." Www)nytimes,7/1/2004 By increasing the federal funds target,the Fed will ________ reserves and ________ the quantity of money.

Which of the following describes the chain of events the Fed uses to fight recession?