Exam 14: Monetary Policy

Businesses become convinced that future profits from investment will be less than initially believed. This conviction leads to a change in aggregate ________ and so the Fed should ________ the federal funds rate if it wants to try to offset this change.

In the short run, if the Fed wants to fight a recession, should it buy or sell government securities? Why?

If the Fed lowers the federal funds rate, aggregate demand decreases.

To decrease inflation, the Federal Reserve would adjust its target for the federal funds rate upward.

The output gap is the

Assume the Fed is concerned with a possible recession so it wants to lower the interest rate. How does the Fed lower the interest rate in the short run?

If the Fed sells bonds in the open market, net exports will increase.

Former Federal Reserve Chairman Ben Bernanke has defined price stability as occurring when the core inflation is

Which of the following is the most important Federal Reserve monetary policy goal?

If the federal funds rate is greater than the federal funds rate target, there is a ________ of reserves and the federal funds rate ________.

"As the Fed Chases Inflation, Critics Shout, 'Faster!'" "For weeks, the Fed has broadcast its intention to raise interest rates glacially." The Fed was moving slowly, according to an economist because "...the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check." The Fed, recognizing that the economy was improving stated it planned to "respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." Other economists disagree with the Fed's restrained policy as a "mistake." Www)nytimes, 7/1/2004 The goal of the Fed's policy in 2004 was to decrease

Suppose the economy is in a recession and the Fed lowers the federal funds rate. Then

If the Fed wants to raise the federal funds rate, it needs to

Read the following statements and determine if they are true or false. I.The Federal Reserve's monetary policy must be approved by the President of the United States. II.The Federal Reserve Board of Governors meets approximately every six months to review the state of the economy and determine monetary policy.

Monetary policy is controlled by

"As the Fed Chases Inflation, Critics Shout, 'Faster!'" "For weeks, the Fed has broadcast its intention to raise interest rates glacially." The Fed was moving slowly, according to an economist because "...the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check." The Fed, recognizing that the economy was improving stated it planned to "respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." Other economists disagree with the Fed's restrained policy as a "mistake." Www)nytimes, 7/1/2004 The Fed's policy will ________ the quantity of money and ________ the supply of loanable funds.

The Taylor Rule states that the

A positive output gap is an inflationary gap.

The core inflation rate, measured by the core PCE deflator, measures changes in the

To increase the quantity of money in the economy, the Federal Reserve is likely to