Exam 15: Monetary Policy

By the height of the housing bubble in 2005 and early 2006,lenders had greatly loosened the standards for obtaining a mortgage loan,with many mortgages being granted to ________ borrowers with flawed credit histories and ________ borrowers who did not document their incomes.

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

Figure 15-7 -Refer to Figure 15-7.Suppose the Fed lowers its target for the federal funds rate.Using the basic AD-AS model in the figure above,this situation would be depicted as a movement from

For purposes of monetary policy,the Federal Reserve has targeted the interest rate known as the

When housing prices ________ as they did beginning in 2006 following the housing market bubble,most banks and other lenders tightened the requirement for borrowers,making it ________ for potential home buyers to obtain mortgages.

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

A borrower defaults on a loan when he stops making payments on the loan.

In which of the following situations would the Fed conduct contractionary monetary policy?

Firms that participate in regular open market transactions with ________ are called primary dealers.

To reassure investors who were unwilling to buy mortgages in the secondary market,the U.S.Congress used two government sponsored enterprises,________,to sell bonds to investors and use the funds to purchase mortgages from banks.

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

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then

What actions should the Fed take if it believes the economy is about to fall into recession?

Table 15-2 -Refer to Table 15-2.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 wants to keep real GDP at its potential level in 2019,it should

Inflation targeting has been adopted by the central banks of several countries including the European Central Bank.

The situation in which short-term interest rates are pushed to zero,leaving the central bank unable to lower them further is known as

Suppose that households became mistrustful of the banking system and decide to decrease their checking account balances and increase their holdings of currency.Using the money demand and money supply model and assuming everything else is held constant,the equilibrium interest rate should

When the Fed buys a security from a financial firm and the financial firm agrees to buy back the security the next day,the transaction is known as

Ceteris paribus,an increase in the money supply will lower short-term interest rates.

Monetary policy is conducted by the U.S.Treasury Department.