Exam 15: Monetary Policy

Table 15-6 -Refer to Table 15-6.Suppose the table above illustrates the values of real and potential GDP and the price level,if the Fed does not vote to change their current policy to be more contractionary or expansionary.If the Fed wants to keep real GDP at its potential level in 2015,should the Fed use a contractionary or expansionary policy? Should it raise or lower its interest rate target? How should it conduct open market operations to achieve its goal?

For purposes of monetary policy,the Federal Reserve has targeted the interest rate known as the

In the following table,fill in the columns for your return on investment if the price of your house increased or decreased by 40 percent,based on the down payments specified in the first column. Return on Your Investment From

Suppose the Fed increases the money supply.Which of the following is true?

Figure 15-4 -Refer to Figure 15-4.In the figure above,a movement from point A to point B would be caused by

To reassure investors who were unwilling to buy mortgages in the secondary market,the U.S.Congress used two government sponsored enterprises,Fannie Mae and Freddie Mac,to stand between investors and banks that grant mortgages.Fannie Mae and Freddie Mac

The leader of the monetarist school and major proponent of a monetary growth rule was

Rising prices erode the value of money as a ________ and as a ________.

In the following table,fill in the columns for your return on investment if the price of your house increased or decreased by 20 percent,based on the down payments specified in the first column. Return on Your Investment From

The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed,and a rate which was ________ that set when Arthur Burns chaired the Fed.

In the Taylor rule,does the target for the federal funds rate respond differently for a recession caused by a decrease in aggregate demand and for a recession caused by a decrease in short-run aggregate supply? Explain whether there is or is not a difference in how the target for the federal funds rate changes.

A financial asset is considered ________ if it can be sold in a secondary market.

An increase in the demand for Treasury bills will

Would the Federal Reserve respond more aggressively with interest rate cuts in a recession caused by a decrease in spending,as in the 2001 recession,than in a recession caused by an increase in oil prices,as in the 1974-75 recession?

Article Summary Concerned about slow economic growth, the Fed announced in September 2013 that it would postpone winding down its $85 billion a month bond purchasing program which has been a key component of its monetary stimulus package. Fed Chairman Ben Bernanke would not commit to a timeline for reducing the bond purchases, stating that the program was "not on a preset course." The Fed's forecasts of economic growth have been lowered for 2013 and 2014, and the Fed does not expect to raise interest rates until 2015. Since late 2008, the Fed has held its benchmark interest rate near zero, while its balance sheet has tripled to more than $3.6 trillion. The Fed also stated that so long as inflation did not become a threat, it would not raise interest rates until the unemployment rate dropped to 6.5 percent. At the time of the announcement, the unemployment rate was 7.3 percent. Source: Pedro da Costa and Alister Bull, "Fed Surprises, sticks to stimulus as it cuts growth outlook," Reuters, September 18, 2013. -Refer to the Article Summary.The Fed announced that it would postpone winding down its $85 billion per month bond purchasing program.The Fed's purchasing of long-term treasury bonds and other government-backed securities in an effort to keep long-term interest rates low is a strategy known as

By the 2000s,an important market change occurred when investment banks became significant participants in the secondary market for

Article Summary Concerned about slow economic growth, the Fed announced in September 2013 that it would postpone winding down its $85 billion a month bond purchasing program which has been a key component of its monetary stimulus package. Fed Chairman Ben Bernanke would not commit to a timeline for reducing the bond purchases, stating that the program was "not on a preset course." The Fed's forecasts of economic growth have been lowered for 2013 and 2014, and the Fed does not expect to raise interest rates until 2015. Since late 2008, the Fed has held its benchmark interest rate near zero, while its balance sheet has tripled to more than $3.6 trillion. The Fed also stated that so long as inflation did not become a threat, it would not raise interest rates until the unemployment rate dropped to 6.5 percent. At the time of the announcement, the unemployment rate was 7.3 percent. Source: Pedro da Costa and Alister Bull, "Fed Surprises, sticks to stimulus as it cuts growth outlook," Reuters, September 18, 2013. -Refer to the Article Summary.When the Fed announced it did not expect to raise its benchmark interest rate until 2015,it was referring to the

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.

Your roommate is having trouble grasping how monetary policy works.Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply

Which of the following are goals of monetary policy?