Exam 17: Monetary Policy

Figure 17-11 -Refer to Figure 17-11.In the dynamic model of AD-AS in the figure above,the economy is at point A in year 1 and is expected to go to point B in year 2,and the Federal Reserve pursues policy.This will result in

Most of the pressure for a monetary growth rule has disappeared because since 1980

Figure 17-7 -Refer to Figure 17-7.Suppose the economy is in a recession and no policy is pursued.Using the basic AD-AS model in the figure above,this situation would be depicted as a movement from

The Fed can attempt to increase the federal funds rate by

The Federal Reserve's two main ________ are the money supply and the interest rate.

Figure 17-7 -Refer to Figure 17-7.Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy.Using the basic AD-AS model in the figure above,this situation would be depicted as a movement from

Expansionary monetary policy refers to the Fed's increasing the money supply and increasing interest rates to increase real GDP.

Contractionary monetary policy causes

The Fed can directly lower the inflation rate.

Use a graph to show the effects of a contractionary monetary policy to reduce inflation and move an economy back to potential real GDP.Explain what happens to aggregate demand,real GDP,and the price level.

Figure 17-3 -Refer to Figure 17-3.In the figure above,when the money supply shifts from MS₁ to MS₂,at the interest rate of 3 percent households and firms will

When the Fed uses contractionary policy

The money demand curve has a negative slope because

If the Federal Reserve raises or lowers interest rates too late,it could result in a ________ policy that destabilizes the economy.

Federal Reserve Board Chairmen Paul Volcker,as well as later Fed chairs,focused on which of the following as their main goal of monetary policy?

In October 2008,Congress passed the Troubled Asset Relief Program (TARP),under which the Treasury provided ________ to banks in exchange for ________.

Monetary policy refers to the actions the

Use the money demand and money supply model to show the money market in equilibrium with an interest rate of 5 percent and the quantity of money of $800 billion.Suppose the Federal Reserve increases the money supply to $850 billion.At the previous equilibrium interest rate of 5 percent,will households and firms now be holding more money or less money than they want to hold,and will they be buying or selling short-term financial assets? At the new equilibrium interest rate,households and firms will desire to hold the entire $850 billion of the money supply.What causes households and firms to want to hold the additional $50 billion of the money supply?

The Federal Reserve cannot target both the money supply and the interest rate because it does not control

Describe how the Fed would traditionally use open market operations to change short-term and long-term interest rates.