Exam 16: Interest Rates and Monetary Policy

Refer to the graph above. If the equilibrium interest rate is 4 percent, the supply of money must be:

If the Fed buys government securities from commercial banks in the open market:

Refer to the graphs above, in which the numbers in parentheses near the AD₁, AD₂, and AD₃ labels indicate the level of investment spending associated with each curve. All figures are in billions. The economy is at point Z on the investment demand curve. Given these conditions, what policy should the monetary authorities pursue to achieve a noninflationary full-employment level of real GDP?

If the Fed reduces the interest paid on banks' reserves, it is trying to make banks hold:

The effects of expansionary monetary policy are strengthened by a liquidity trap.

The Fed can induce banks to increase their reserve holdings by:

When the interest rate falls, the:

A bond with no expiration date has a face value of $10,000 and pays a fixed 10 percent interest. If the market price of the bond rises to $11,000, the annual yield approximately equals:

Among the worrisome consequences of the government's aggressive implementation of ZIRP and QE are the following, except:

The discount rate is the interest rate at which commercial banks lend to their best corporate customers.

A consumer holds money to meet spending needs. This would be an example of the:

Other things equal, an improvement in the expected rate of net profit would:

An increase in the money supply is likely to reduce:

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 tend to offset each other in trying to achieve that objective?

If the Fed is targeting a lower federal funds rate, then it is pursuing a restrictive monetary policy.

The most recently-introduced tool of monetary policy is the:

An interesting development that happened in late 2008, relating to the Fed and bank reserves, is that the Fed:

If real GDP is 2% below potential GDP, and the inflation rate is 1%, then according to the Taylor rule, the Fed should make the real federal funds rate:

Refer to the figure above. If demand for overnight funds in the graph should increase by $50 billion at each and every point on the demand curve, but the Federal Reserve wants to keep the target rate at 5.0 percent, what will be the new equilibrium quantity of reserves?

The ZIRP (zero interest rate policy) of the Fed led to the so-called zero lower bound problem, which refers to the problem of: