Exam 14: Monetary Policy

An open market sale of government securities by the Federal Reserve shifts the ________ reserves curve ________.

In the short run, a rise in the federal funds rate ________ the price level and ________ real GDP.

-In the above figure, the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD? to AD?. If the Fed wants to offset this change, it would ________.

When the Federal Reserve fights inflation via open market operations, the supply of reserves curve shifts ________ and the supply of money curve shifts ________.

In December, the Bank of England reduced interest rates by another 50 basis points after points (a basis point is 0.01 percentage point)it had cut them by 150 basis points in November. But the rate cut may even be larger. Economists "... expect the Monetary Policy Committee [MPC] to cut rates to 2.5 percent,"...while others "...saw a bigger 75 point cut"...or "a 100 basis point move." Data show that "... inflation staged its biggest drop since records began ...potentially opening the door to even bigger cuts." Reuters, 11/27/2008 If the Bank's policies given above can ________ the real long-term interest rate,the Bank will be able to ________.

If the Fed sells U.S. government securities

When the Federal Reserve increases the Federal funds rate, the U.S. interest rate differential ________ and the U.S. exchange rate ________.

Does an open market operation in which the Fed buys securities from the general public decrease or increase the banking system's reserves?

If the Fed wants to decrease the quantity of money, it can

The monetary policy instrument the Federal Reserve choose to use is the

When the Fed lowers the federal funds rate, it increases reserves and increases the quantity of deposits and loans created.

In the short run, the Federal Reserve faces a tradeoff between

In the short-run, lowering the federal funds rate will shift the ________ and ________ real GDP.

In September 2012 the Fed announced that it would buy $40 billion of mortgage backed securities per month. One goal of this policy was to ________ the price of these securities and thereby help ________.

When the Fed lowers the federal funds rate, the U.S. dollar ________ on the foreign exchange market and ________.

A rise in the federal funds rate

Currently the Fed targets

Suppose that initially real GDP equals potential GDP. Then a decrease in aggregate demand occurs. According to the Taylor rule, the Fed should ________ the federal funds rate by ________ government securities in the open market.

If the interest rate on Treasury bills is higher than the federal funds rate, the quantity of overnight loans supplied ________ and the ________ for Treasury bills increases.

Federal Reserve monetary policy goals include