Exam 15: Monetary Policy

Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 2 percent,the current inflation rate is 4 percent,and real GDP is 2 percent above potential real GDP.If the weights for the inflation gap and the output gap are both 1/2,then according to the Taylor rule the federal funds target rate equals

In reality,the Fed is unable to use monetary policy to keep real GDP exactly at its potential level.

Figure 15-1 -Refer to Figure 15-1.In the figure above,the money demand curve would move from Money demand₁ to Money demand₂ if

The situation in which short-term interest rates are pushed to zero,leaving the central bank unable to lower them further is known as

Suppose that the economy is producing above potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the peak of the boom.Then

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

If the Federal Reserve raises or lowers interest rates too late,it could result in a ________ policy that destabilizes the economy.

List the Fed's four main monetary goals.

The Fed has adopted an interest rate target for most of the time since World War II.

Which of the following is not an argument against inflation targeting?

Table 15-2 -Refer to Table 15-2.Consider the hypothetical information in the table above for potential real GDP,real GDP and the price level in 2014 and in 2015 if the Federal Reserve does not use monetary policy.If the Fed wants to keep real GDP at its potential level in 2015,it should

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then

When the Fed embarked on a policy known as quantitative easing,they

Table 15-8 -Refer to Table 15-8.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2014 if the Federal Reserve does not use monetary policy: a.If the Fed wants to keep real GDP at its potential level in 2014,should it use an expansionary policy or a contractionary policy? Should the trading desk buy T-bills or sell them? b.Suppose the Fed's policy is successful in keeping real GDP at its potential level in 2014.State whether each of the following will be higher or lower than if the Fed had taken no action: (i)Real GDP (ii)Full-employment real GDP (iii)The inflation rate (iv)The unemployment rate c.Draw an aggregate demand and aggregate supply graph to illustrate your answer.Be sure that your graph contains LRAS curves for 2013 and 2014; SRAS curves 2013 and 2014; AD curve for 2013 and 2014,with and without monetary policy actions; and equilibrium real GDP and the price level in 2014 with and without policy.

In October 2008,Congress passed the ________,under which the Treasury provided funds to banks in exchange for stock.

If the Fed pursues expansionary monetary policy,

Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market purchase of Treasury securities.

An advantage of the personal consumption expenditures price index (PCE)over the Consumer Price Index (CPI)as a measure of inflation is that the PCE

The body that is responsible for dating the beginning and ending dates for a recession is

In October 2008,Congress passed the Troubled Asset Relief Program (TARP),under which the Treasury provided ________ to banks in exchange for ________.