Exam 17: Monetary Policy

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

With global borrowing costs so low, economic analysts are warning that central banks need to be prepared to set negative interest rates during the next economic downturn. Several central banks in Europe set negative interest rates in 2014, as did the Japanese central bank in 2016, in an attempt to spur lending. The global market value of negative-yielding bonds rose to $8.6 trillion in mid-2017 due to low inflation and increased perceptions of geopolitical risk. The current U.S. economic expansion is the third longest since the 19th century, and credit markets are showing signs of reaching a cyclical peak. According to Harvard professor Kenneth Rogoff, low interest rates this late in an economic cycle are unprecedented, noting that the Fed cut interest rates by an average of 5.5 percentage points in the nine recessions since the 1950s, and this would be impossible today without negative interest rates. Source: Sid Verma and Cecile Gutscher, "With Next Recession Looming, Central Banks Better Make Peace With Negative Rates," bloomberg.com, August 14, 2017. -Refer to the Article Summary.Implementing a negative interest rate policy,as is discussed in the article summary,would be designed to ________ the price level and ________ real GDP.

The Taylor rule accurately predicted the changes in the federal funds target during the period

In the following table,fill in the columns for your return on investment if the price of your house increased or decreased by 20 percent,based on the down payments specified in the first column. Return on Your Investment From Down Payment A 20 Percent Increase in the Price of Your House A 20 Percent Decrease in the Price of Your House 100\% 20 10 5

The main goal of monetary policy for recent Fed Chairmen has been to maintain high employment in labor markets.

Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market purchase of Treasury securities.

Which of the following explains why mortgages weren't considered securities prior to 1970?

To reassure investors who were unwilling to buy mortgages in the secondary market,the U.S.Congress used two government sponsored enterprises,Fannie Mae and Freddie Mac,to stand between investors and banks that grant mortgages.Fannie Mae and Freddie Mac

When the Fed embarked on a policy known as quantitative easing,they

When calculating GDP,the Bureau of Economic Analysis releases its "advanced estimate" of a quarter's GDP approximately

Figure 17-6 -Refer to Figure 17-6.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

Beginning in 2008,The Federal Reserve and the U.S.Treasury Department responded to the financial crisis by intervening in financial markets in unprecedented ways.Briefly summarize the 4 key actions of the Fed and Treasury.

An increase in interest rates

The monetary policy target the Federal Reserve focuses primarily on today is

The Fed's preferred measure of inflation is

Suppose the equilibrium real federal funds rate is 5 percent,the target rate of inflation is 3 percent,the current inflation rate is 5 percent,and real GDP is 4 percent above potential real GDP.If the weights for the inflation gap and the output gap are both 1/2,then according to the Taylor rule the federal funds target rate equals

During the turmoil in the market for subprime mortgages in 2007 and 2008,the Fed increased the volume of discount loans.The goal of the Fed was to

Expansionary monetary policy refers to the ________ to increase real GDP.

What is a mortgage? What were the important developments in the mortgage market during the years after 1970?

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.