Exam 15: Monetary Policy

Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by a decrease in spending,as in the 2001 recession,than in a recession caused by an increase in oil prices,as in the 1974-75 recession?

Figure 15-10 -Refer to Figure 15-10.In the figure above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

Figure 15-12 -Refer to Figure 15-12.In the dynamic AD-AS model,if 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 no policy,then at point B

An increase in the demand for Treasury bills will

In 2008,the Fed began paying banks interest on their reserve holdings.

The money supply curve is vertical if

Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 2 percent,the current inflation rate is 4 percent,and real GDP is 2 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

Figure 15-2 -Refer to Figure 15-2.In the figure above,the movement from point A to point B in the money market would be caused by

Table 15-3 -Refer to Table 15-3.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if the Federal Reserve does not use monetary policy.If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2019,which of the following will be lower than if the Fed had taken no action?

Lowering the interest rate will

From an initial long-run macroeconomic equilibrium,if the Federal Reserve anticipated that next year aggregate demand would grow significantly faster than long-run aggregate supply,then the Federal Reserve would most likely

Table 15-8 -Refer to Table 15-8.The hypothetical information in the table shows what the values for real GDP and the price level would have been in 2019 if the Federal Reserve did not use monetary policy: a.If the Fed wanted to keep real GDP at its potential level in 2019,should it have used an expansionary policy or a contractionary policy? Should the trading desk have bought T-bills or sold them? b.Suppose the Fed's policy was successful in keeping real GDP at its potential level in 2019.State whether each of the following would be higher or lower than if the Fed had taken no action: (i)Real GDP (ii)Full-employment real GDP (iii)The inflation rate (iv)The unemployment rate c.Draw an aggregate demand and aggregate supply graph to illustrate your answer.Be sure that your graph contains LRAS curves for 2018 and 2019; SRAS curves 2018 and 2019; AD curve for 2018 and 2019,with and without monetary policy actions; and equilibrium real GDP and the price level in 2019 with and without policy.

Suppose you buy a house for $250,000.One year later,the market price for the house has fallen to $200,000.What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

Under the monetary growth rule proposed by the monetarists,the money supply would grow each year at a constant rate equal to the long-run rate of growth of

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was the Treasury's move to have the federal government take control of

The Fed

An increase in real GDP

The Federal Reserve responded to the 2008 financial crisis in several ways.Which of the following is one of the ways the Fed responded?