Exam 14: Monetary Policy and the Federal Reserve System

Use the LR curve to show what happens to output,the real interest rate,and the price level in the short run and in the long run if the government provides a tax credit to people who buy a new home,which leads to an increase in new housing investment.

Monetarists suggest doing which of the following?

Suppose the Fed has just learned that some foreign economies are headed for recession,which will reduce U.S.exports.This is an economic shock that shifts the IS curve down.What would you do in response to the shock if you want to keep the economy at full-employment equilibrium under each of the following cases? (a)You use the classical (RBC)model. (b)You use the Keynesian (efficiency wage)model. (c)You use the extended classical model with misperceptions. In each case,show the IS-LM-FE diagram associated with your answer.

The Fed can reduce the money supply by reducing

When the Fed increases the quantity of assets it owns,it is said to be engaging in

Which of the following variables is likely to serve as an intermediate target for monetary policy?

Most Keynesians suggest that the Fed

Assume that the reserve-deposit ratio is 0.2.The Federal Reserve carries out open-market operations,purchasing $1,000,000 worth of bonds from banks.This action increased the money supply by $2,600,000.What is the currency-deposit ratio?

How many Federal Reserve Banks are there?

Describe the strategy of inflation targeting.Why have many countries begun to use this strategy instead of targeting money growth? What are the advantages and disadvantages of inflation targeting?

Which of the following are depository institutions?

Milton Friedman would eliminate the destabilizing effect of the Federal Reserve's monetary policy by

In the Keynesian model,suppose the Fed sets a target for the real interest rate.If the IS curve shifts up and to the right,and the Fed wants to keep output unchanged in the short run and the price level unchanged in the long run,what should the Fed do? Use the LR curve to formulate your answer.

The money supply is $10 million,currency held by the nonbank public is $2 million,and the reserve-deposit ratio is 0.2.Bank deposits are equal to

Vault cash is equal to $2 million,deposits by depository institutions at the central bank are $1 million,the monetary base is $15 million,and bank deposits are $30 million.Bank reserves are equal to

In response to an unanticipated tightening of monetary policy,output ________ at first,then ________ after about 4 months.

Last year,the currency-deposit ratio was 0.2 and the reserve-deposit ratio was 0.2.Over the past year,the public changed its currency-deposit ratio,to which the Fed responded by reducing the reserve-deposit ratio to 0.15,to keep the money supply from changing and keeping the same monetary base.Calculate the new currency-deposit ratio.Show your work.

Open-market operations,changes in reserve requirements,changes in the discount rate,and changes in the interest rate on reserves are known as

Vault cash is equal to $8 million,deposits by depository institutions at the central bank are $2 million,the monetary base is $30 million,and bank deposits are $100 million.The money multiplier is equal to

In the Keynesian model,suppose the Fed sets a target for the real interest rate.If the IS curve shifts up and to the right,and the Fed wants to keep output unchanged in the short run and the price level unchanged in the long run,it will