Exam 15: Monetary Policy

By the 2000s,investment banks had become significant participants in the secondary market for mortgages.

If the Fed raises the interest rate,this will ________ inflation and ________ real GDP in the short run.

An increase in the money supply will

In 2008,the Treasury and Federal Reserve took several actions in response to the deepening financial crisis.One action was that the Fed announced it would loan up to $200 billion of Treasury securities in exchange for

Suppose the equilibrium real federal funds rate is 3 percent,the target rate of inflation is 3 percent,the current inflation rate is 1 percent,and real GDP is 8 percent below 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 15-6 -Refer to Figure 15-6.In the figure above,if the economy is at point A,the appropriate monetary policy by the Federal Reserve would be to

An increase in the interest rate should

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 ________.

Your income will increase if the Federal Reserve buys a Treasury bill from you and pays you with a check from the Fed.

The Fed's two main monetary policy targets are

Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often

In the countries that have adopted inflation targeting,the inflation rate has typically

The body that is responsible for dating the beginning and ending dates for a recession is

Using the money demand and money supply model,an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the Federal Reserve to conduct an expansionary monetary policy.Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.

Changes in interest rates affect all four components of aggregate demand.

What problems can high inflation rates cause for the economy?

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

Which of the following correctly describes what the Fed used as monetary targets in the past?

With the Troubled Asset Relief Program (TARP),the Treasury provided funds to banks in exchange for stock.