Exam 26: Monetary Policy

When the Fed increases the money supply,

From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly faster than long-run aggregate supply, then the Federal Reserve would most likely

An argument in favor of the Federal Reserve adopting inflation targeting is that in the long run, the Fed can have an impact on inflation but not on real GDP.

Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook.

Inflation rates during the years 1979-1981 were the highest the United States has ever experienced during peacetime.

When housing prices ________, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements declined as many households found it ________ to borrow against the value of their homes.

Despite saving Lehman Brothers from failing, the Fed and the Treasury decided to allow Bear Stearns to go bankrupt, which it did in September, 2008.

Between September 2007 and March 2008 there was a substantial reduction in the demand for housing. What action did the Fed take in response to the reduction in the demand for housing?

The Federal Reserve cannot target both the money supply and the interest rate because it does not control

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

Since 2000, the Fed uses ________ to measure inflation.

Buying a house during a recession may be a good idea if your job seems secure because the Federal Reserve often lowers interest rates during a recession.

If the probability of losing your job remains ________, a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time.

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 ________.

Use the money demand and money supply model to show graphically and briefly explain the effect on the interest rate if real GDP increases.

The Fed uses a "core" price index, one that excludes food and energy prices to measure inflation. It does so because

Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.