Exam 16: Interest Rates and Monetary Policy

The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would reinforce each other to achieve that objective?

Refer to the graph above. If the interest rate rises from 2 percent to 3 percent, the supply of money must have:

Refer to the graph above, in which D_t is the transactions demand for money, D_m is the total demand for money, and S_m is the supply of money. The market is initially in equilibrium at a 6 percent interest rate. If the money supply increases, then S_m2 will shift to:

Raising the interest paid on reserves has the effect of making it:

After the Great Recession when the recovery turned out to be very weak, economic policy in the U.S. had to turn forcefully toward fiscal policy because of the following reasons, except:

Answer the question based on the information given in the table below that shows the items and figures taken from a consolidated balance sheet of the twelve Federal Reserve Banks. All figures are in billions of dollars. In the balance sheet above for the Federal Reserve, the liabilities and net worth would be items 7 and:

The Federal Reserve can increase aggregate demand by:

Other things equal, an increase in consumer wealth will:

The Fed's response to the zero lower bound problem was quantitative easing (or "QE"), where the Fed buys large amounts of bonds in order to:

Suppose the economy is at full employment with a high inflation rate. Which combination of government policies is most likely to reduce the inflation rate?

Which line in the graph above would best illustrate the supply of money curve?

If the Fed is trying to make the interest rates go down, it wants:

According to the Taylor rule, if the target rate of inflation for the Fed is two percent and real GDP rises by one percent above potential GDP, then the Fed should:

Assume that the required reserve ratio for the commercial banks is 25 percent. If the Federal Reserve Banks buy $3 billion in government securities from the non-bank securities dealers, then as a result of this transaction, the lending ability of the commercial banking system will increase by:

Refer to the figure above. Which change would be consistent with an attempt by the Federal Reserve to rein in inflation?

Assume that the required reserve ratio is 20 percent. If the Federal Reserve buys $80 million in government securities from the general public, then the money supply will immediately:

Which line in the graph above would best illustrate the transactions demand for money curve?

The important effects of ZIRP, QE, and Operation Twist include the following, except:

If the Fed sells $10 million in government securities to commercial banks, the size of the effect on the banks' excess reserves is not the same as if the Fed sold the securities to the public instead.

When the Fed lowered short-term interest rates to near zero but the policy didn't seem to stimulate the economy enough, the Fed in 2009 also began conducting the policy of expansive buying of bonds now known as: