Exam 14: Monetary Policy

If the Fed raises the federal funds rate so that the exchange rate rises,then imports ________ and exports ________.

A widespread fall in asset prices means that banks might become

Discuss how the Fed raising the federal funds rate ripples through the different sectors of the economy.

If the U.S.interest rate rises,the exchange rate ________ and net exports ________.

If the Fed is concerned about inflation,in the short run what is the proper monetary policy to restore price stability? What actions can the Fed undertake to restore price stability?

When the Fed raises the federal funds rate,other

-The figure above shows the market for bank reserves in Futureland.If the Bank of Futureland undertakes an open market purchase of government securities that changes the quantity of reserves by $100 billion,then the federal funds rate will ________.

Suppose the inflation rate is 3 percent and the output gap is -1 percent.Assuming the equilibrium real interest rate is 2 percent,using the Taylor rule,what target should the Fed set for the federal funds rate?

In December,the Bank of England reduced interest rates by another 50 basis points (a basis point is 0.01 percentage point) after it had cut them by 150 basis points in November. But the rate cut may even be larger. Economists "...expect the Monetary Policy Committee [MPC] to cut rates to 2.5 percent,"...while others "...saw a bigger 75 point cut"...or "a 100 basis point move." Reuters,11/27/2008 In order to ________,the Bank of England's rate cut must ________.

When the Fed purchases U.S.government securities in the open market,the federal funds falls.

In the short run,the Federal Reserve faces a tradeoff between

The Fed targets the 30-year bond rate as its monetary policy instrument.

"The Bank of Israel lowered its benchmark lending rate by half a percentage point,the fourth cut in seven weeks,as the global financial turmoil slows economic growth and inflation expectations ease." www.bloomberg.com 11/24/2008 The Bank of Israel's actions ________ bank reserves and have the goal of ________ consumption.

Which of the following increases the quantity of money?

When the economy is in recession,does the Fed want to raise the interest rate so as to increase aggregate demand and increase real GDP? Explain your answer.

If the Fed follows the Taylor rule and the economy goes into a recession,the Fed would

Which of the following is NOT a short-run effect of a decrease in the federal funds rate?

-In the above figure,suppose the economy was initially in an equilibrium at point D.Where would the economy move if the Fed makes an open market purchase of government securities?

If the Fed lowers the federal funds rate,aggregate demand decreases.

If the interest rate on Treasury bills is higher than the federal funds rate,the quantity of overnight loans supplied ________ and the ________ for Treasury bills increases.