Exam 14: Monetary Policy

What is the effect of lowering the interest rate on net exports? Explain your answer.

If the Fed sells bonds in the open market,net exports will decrease.

In the economy of Rulewania,the current inflation rate is 6 percent and the Central Bank's target inflation rate is 2 percent.Real GDP exceeds potential GDP by 1 percent,and the long-term growth rate of real GDP is 5 percent.The medium-term growth rate of the velocity of circulation of the monetary base is 2 percent.According to the Taylor rule,what federal funds rate should the Central Bank set?

-In the above figure,the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD₀ to AD₁.If the Fed wants to offset this change,it would ________.

The core inflation rate is more volatile than the total CPI inflation rate.

In the short run,monetary policy can

In September 2012 unemployment was high and the Fed was concerned that the economy would re-enter a recession.Therefore the Fed announced it would ________ its purchases of securities in an effort to ________.

Federal Reserve open market operations directly influence

The Federal Reserve fights recession via open market operations,the supply of reserves curve shifts ________ and the supply of money curve shifts ________.

"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 The goal of the Fed's policy in 2004 was to decrease

The Fed's actions to fight an inflation shift the

Which of the following is a potential monetary policy instrument for the Fed?

Suppose that the market for reserves is in equilibrium and then the Federal Reserve decreases the quantity of reserves by $2 billion.The federal funds rate will ________ and the supply of loanable funds will ________.

The People's Bank of China announced that it was lowering by 1.08 percentage points the one-year lending rate in response to the slowdown in the Chinese economy.This rate is the Chinese equivalent of the federal funds rate in the United States. www.nytimes.com,11/26/2008 This policy ________ the supply of loanable funds.As a result,the long-term real interest rate ________,and planned expenditures ________.

If the Fed carries out an open market operation and sells U.S.government securities,the federal funds rate falls and the quantity of money increases.

A rise in the federal funds rate

The Taylor rule uses three variables to determine the target for the federal funds rate.Which of the following is NOT one of those variables?

Monetary policy affects real GDP by

Businesses become convinced that future profits from investment will be less than initially believed.This conviction leads to a change in aggregate ________ and so the Fed should ________ the federal funds rate if it wants to try to offset this change.

The output gap is the