Exam 15: Monetary Policy

In the long run changes in the money supply change prices but not real output and interest rates.

Inflation targeting is different from the Taylor rule because the Taylor rule is based on a forecast of inflation, but inflation targeting adjusts monetary policy to past inflation.

An increase in the supply of money will lead to a(n) _____ in equilibrium real GDP and a _____ equilibrium interest rate.

Improvements in information technology have:

In the long-run changes in the money supply will change prices but not real GDP or interest rates.

Why does a recession, all else equal, decrease the demand for money?

If a checking account has an interest rate of 1% and a Treasury bill has an interest rate of 3%, the opportunity cost of holding cash in a checking account is:

If Congress imposes a $5 tax on each ATM transaction, the demand for money will likely:

If the economy is in a recessionary gap, the Federal Reserve should conduct _____ monetary policy by _____ the money supply.

The higher the short-term interest rate, the lower the opportunity cost of holding money.

When the short-term interest rate _____, the opportunity cost of holding money _____, and the quantity of money individuals want to hold _____.

Expansionary monetary policy _____ the money supply, _____ interest rates, and _____ consumption and investment spending.

Long-term interest rates affect the demand for money more than short-term interest rates.

Suppose the Federal Reserve sells Treasury bills. We can expect this transaction to _____ the money supply, _____ Treasury bill prices, and _____ interest rates.

To lower the short-term interest rate, the Federal Reserve can:

The higher the short-term interest rate, the:

Use the following to answer questions : Figure: Monetary Policy and the AD-SRAS Model -(Figure: Monetary Policy and the AD-SRAS Model) Look at the figure Monetary Policy and the AD-SRAS Model. If the economy is in an inflationary gap at point h, it can move to point i as a result of:

Use the following to answer questions : Figure: Monetary Policy I -(Figure: Monetary Policy I) Look at the figure Monetary Policy I. If the economy is initially in equilibrium at E₁ and the central bank chooses to sell Treasury bills, _____ shift to the _____ a(n) _____ gap.

If the interest rate on CDs rises from 5% to 10%, the opportunity cost of holding money will _____ and the quantity demanded of money will _____.

The Fed uses _____ to target the federal funds rate.