Exam 16: Interest Rates and Monetary Policy

The use of monetary policy to shift aggregate demand to the right in a severe recession is like:

Refer to the graph above. If the initial equilibrium interest rate was 5 percent and the money supply increased by $100 billion, then the new interest rate would be:

Monetary policy actions by the Fed are:

An increase in nominal GDP will:

The level of GDP, ceteris paribus, will tend to increase when:

Quantitative easing (QE) differs from open-market purchases in that QE shrank the assets of the Fed whereas open market purchases expands the Fed's assets.

Commercial bank reserves, most of which are held by the Federal Reserve Banks, are:

The price of a bond with no expiration date is $1,000 and the fixed annual interest payment is $100. If the price of the bond falls to $800, the interest rate to a new buyer of the bond is now 20 percent.

Assume the commercial banking system has checkable deposits of $20 billion and excess reserves of $2 billion when the reserve ratio is 25 percent. If the reserve ratio is then lowered to 20 percent, we can conclude that the:

There is an asset demand for money primarily because of which function of money?

If consumers and businesses are especially pessimistic, as in the Great Recession of 2007-2009, and do not want to borrow money from banks, then the use of an expansionary money policy is likened to:

A newspaper headline reads: "Fed Raises Discount Rate for Third Time This Year." This headline indicates that the Federal Reserve is most likely trying to:

If the Federal funds rate:

In the recent financial and economic crises, the economy fell into a so-called liquidity trap, which means that:

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 equilibrium at the intersection of the aggregate supply curve and aggregate demand curve AD₃. What policy should the Fed pursue to achieve a noninflationary full-employment level of real GDP?

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 assets would be items 5 and:

When the Fed wants to lower the Federal funds rate, it:

An expansionary monetary policy increases the money supply, lowers interest rates, and increases aggregate demand.

Disequilibrium in the money market is mainly corrected via a change in:

The purchase and sale of government securities by the Fed is called: