Exam 14: Monetary Policy

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

-In the above figure, if the economy is initially at point D, then if the Fed lowers the federal funds rate

The Taylor Rule maintains that the Fed should set the growth rate of the quantity of money equal to the growth rate of real GDP.

Which of the following is a problem in pursuing monetary policy?

If the Fed fears inflation it will undertake an open market ________ of securities, the federal funds rate will ________ and the long-term real interest rate will ________.

When the Fed lowers the federal funds rate, aggregate demand

Long-term interest rates fluctuate more than short-term rates.

Open market operations by the Fed lead to

-In the above figure, if the economy is initially at point c, the short-run effect of a hike in the federal funds rate is given by movement from point

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following changes immediately?

"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 By increasing the federal funds target, the Fed will ________ reserves and ________ the quantity of money.

Which of the following is NOT a short-run effect of a decrease in the federal funds rate?

Suppose that the equilibrium real interest rate is 2 percent per year, inflation is 2.5 percent and the output gap is 1 percent. Using the Taylor rule, what is the federal funds rate?

If the aggregate demand curve shifts rightward following a decrease in the federal funds rate, what can be concluded if the short-run aggregate supply curve is rather steep?

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

Monetary policy affects real GDP by

-The figure above shows the market for bank reserves in Futureland. If the Bank of Futureland undertakes an open market purchase of government securities that changes the quantity of reserves by $100 billion, then the federal funds rate will ________.

If the Fed wanted to stimulate the economy to limit the effects of a recessionary gap, then it should ________ the federal funds rate in order to ________ the real interest rate and thereby ________ investment.

The key aim of monetary policy is to

During the financial crisis of 2008-2009, the Fed's actions to supply reserves to the banking system was an attempt to