Exam 14: Monetary Policy

At the end of 2012,the Fed was buying about $100 billion of securities per month,a much higher amount than normal.These purchases would ________ the value of the dollar on foreign exchange markets thereby ________ U.S.exports.

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 The Fed's rates cuts will initially impact ________ and eventually ________.

Ben Bernanke has been more precise than his predecessor,suggesting a core inflation rate of ________ per year is the same as price stability.

When the Fed raises the federal funds rate,in the foreign exchange market people ________ dollars and the price of the dollar ________ on the foreign exchange market.

-In the above figure,the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD₀ to AD₂.If the Fed wants to offset this change,it would ________.

"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 As a result of the Fed's policy,which of the rates will increase?

Assume the Fed is concerned with a possible recession so it wants to lower the interest rate.How does the Fed lower the interest rate in the short run?

If the Fed wants to decrease the quantity of money,it can

If the demand for reserves is unchanged,an increase in the quantity of reserves will

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

-In the above figure,suppose the economy is at point D.Which of the following occurs as a result of an open market purchase of government securities by the Fed?

8 Extended Problems -The figure above shows the demand for money in Kiteland. a) If the Kiteland Central Bank has set the quantity of money so that the equilibrium interest rate is 4 percent,draw the supply of money curve. b) Suppose that Kiteland's Central Bank wants to raise the interest rate by 1 percentage point.By how much must it change the quantity of real money? c) In order to change the quantity of money to raise the interest rate by one percentage point,if the Central Bank uses an open market operation,does it make an open market purchase or an open market sale? Explain your answer.

The Taylor rule

To lower the federal funds rate,the Federal Reserve should

In 2012,the Federal Reserve announced it would hold the federal rates near 0 percent "at least through mid-2015." This policy attempted to shift the

Read the following statements and determine if they are true or false. I. The Federal Reserve's monetary policy must be approved by the President of the United States. II) The Federal Reserve Board of Governors meets approximately every six months to review the state of the economy and determine monetary policy.

If the Fed increases the quantity of reserves,a new equilibrium is reached by a

By using open market operations,the Federal Reserve

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 The "interest rates" the Fed is cutting is the ________.

Equilibrium in the market for bank reserves determines the