Exam 18: Monetary Policy: Stabilizing the Domestic Economy

Given the following Taylor rule: Target federal funds rate = real interest rate+ current inflation + ½(inflation gap) +½(output gap); The current rate of inflation is 2 percent and the target rate of inflation is 2 percent and the economy is operating at full potential.The FOMC sets a target federal funds rate of 5 percent.What is the real interest rate?

Within the ECB, there is a minimum interest rate that can be charged on reserves; this is determined by:

Which of the following features would characterize a good monetary policy instrument?

What were the 3 unconventional policy approaches used by the Fed during the financial crisis of 2007-2009?

What is the general consensus among economists and other monetary policy experts regarding the usefulness of the monetary policy instruments available to central banks?

Which of the following statements is most correct?

Federal funds loans are:

Which of the following statements is not correct?

The focus for most central banks today is:

There have been many changes made to the method for computing the required reserves for banks over the years.Currently, the lagged reserve accounting used enables a bank and the Fed to know the level of reserves required over a period of time well before the period of time begins.Why is this method for computing reserves advantageous to banks as well as the Fed?

When the Fed forecasts a sustained increase in the demand for the monetary base, the staff of the Fed is likely to meet this demand through:

A practical limitation of using the Taylor rule for setting the target federal funds rate would be that it:

Describe the supply curve in the market for bank reserves.

Over the last few decades, central bankers have:

The measure for the actual rate of inflation used in the Taylor rule is the:

Discuss the differences between permanent and temporary open market operations and the instruments the FOMC uses for each.

Why does the Federal Funds rate face a zero bound?

Discount lending today is primarily used for:

Discuss why the Fed can either select a quantity or a price (interest rate) target but not both.If it helps, you can use the market for reserves for an example.

Central banks that have a hierarchical mandate with inflation targeting basically are saying: