Exam 15: Monetary Policy

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.

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

The supporters of a monetary growth rule believe that active monetary policy

Following the financial crisis of 2007-2009,banks had a glut of excess reserves.Because of this extraordinary amount of excess reserves being held by banks,the Fed's draining some of them through open market sales of Treasury securities would

If the amount you owe on your house is greater than the price of the house,you have

An increase in the interest rate

Figure 15-9 -Refer to Figure 15-9.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?

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 a contractionary monetary policy.Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.

The money demand curve has a negative slope because

A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

When housing prices ________,as they did beginning in 2006 following the housing market bubble,consumption spending on furniture,appliances,and home improvements decline as many households find it ________ to borrow against the value of their homes.

Rising prices erode the value of money as a ________ and as a ________.

In recent years,a monetary growth rule has fallen out of favor because

When the Federal Reserve System was established in 1913,its main policy goal was

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

A monetary policy target is a variable that

The federal funds rate

Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply

Table 15-6 -Refer to Table 15-6.Suppose the table above illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary.If the Fed wants to keep real GDP at its potential level in 2019,should the Fed use a contractionary or expansionary policy? Should it raise or lower its interest rate target? How should it conduct open market operations to achieve its goal?

The smaller the fraction of an investment financed by borrowing