Exam 26: Monetary Policy

Using the Taylor rule,if the current inflation rate equals the target inflation rate and real GDP is less than potential GDP,then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

The Taylor rule links the Federal Reserve's target for the

One of the monetary policy goals of the Federal Reserve is price stability.

Figure 26-6 -Refer to Figure 26-6.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,and the Federal Reserve pursues no policy,then at point B

Since 2000,the Fed uses ________ to measure inflation.

If the Federal Reserve targets the interest rate and the money demand curve shifts to the left,then the Fed

Since World War II,the Federal Reserve has not been involved in carrying out monetary policy.

The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association were established by Congress in order to regulate banks that buy and sell mortgage-backed securities.

In the countries that have adopted inflation targeting,the inflation rate has typically

The Federal Reserve can directly affect its monetary policy ________,which then affect its monetary policy ________.

Monetary policy refers to the actions the

Under the monetary growth rule proposed by the monetarists,the money supply would grow each year at a constant rate equal to the long-run rate of growth of

A monetary policy target is a variable that the Fed can affect directly,which then affects one or more of the Fed's policy goals.

The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates.

Changes in the federal funds rate usually result in

While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008,others were critical of these actions.The critics were concerned that by not allowing large firms to fail,

Table 26-2 -Refer to Table 26-2.The hypothetical information in the table shows what the values for real GDP and the price level will be in 2011 if the Federal Reserve does not use monetary policy: a.If the Fed wants to keep real GDP at its potential level in 2011,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 2011.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 2010 and 2011; SRAS curves 2010 and 2011; AD curve for 2010 and 2011,with and without monetary policy actions; and equilibrium real GDP and the price level in 2011 with and without policy.

Using the Taylor rule,if the current inflation rate exceeds the target inflation rate and real GDP exceeds potential GDP,then the federal funds target rate ________ the sum of the current inflation rate plus the real equilibrium federal funds rate.

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 sale of Treasury securities.

What is a banking panic,and what role did banking panics play in the decision by Congress to establish the Federal Reserve?