Exam 15: Monetary Policy

Use the money demand and money supply model to show the money market in equilibrium with an interest rate of 5 percent and the quantity of money of $800 billion.Suppose the Federal Reserve increases the money supply to $850 billion.At the previous equilibrium interest rate of 5 percent,will households and firms now be holding more money or less money than they want to hold,and will they be buying or selling short-term financial assets? At the new equilibrium interest rate,households and firms will desire to hold the entire $850 billion of the money supply.What causes households and firms to want to hold the additional $50 billion of the money supply?

Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve

Monetary policy refers to the actions the

Figure 15-10 -Refer to Figure 15-10.In the figure above,suppose the economy is initially at point A.The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?

The Federal Reserve System's four monetary policy goals are

The rate of interest banks charge other banks for overnight loans of reserves is the

Suppose the equilibrium real federal funds rate is 3 percent,the target rate of inflation is 3 percent,the current inflation rate is 1 percent,and real GDP is 8 percent below potential real GDP.If the weights for the inflation gap and the output gap are both 1/2,then according to the Taylor rule the federal funds target rate equals

Monetarists think that the Fed should use ________ as a target when conducting monetary policy.

A borrower defaults on a loan when he stops making payments on the loan.

If the Fed raises its target for the federal fund rate,this indicates that

By the 2000s,an important change in the mortgage market had occurred when ________ became significant participants in the secondary market for mortgages.

Prior to 1970,mortgages were ________ resold in the secondary market.

Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 2 percent,the current inflation rate is 4 percent,and real GDP is 2 percent above potential real GDP.If the weights for the inflation gap and the output gap are both 1/2,then according to the Taylor rule the federal funds target rate equals

If the probability of losing your job remains ________,a recession would be a good time to purchase a home because the Fed usually ________ interest rates during this time.

Use the dynamic aggregate demand and aggregate supply model and start with Year 1 in long-run macroeconomic equilibrium.For Year 2,graph aggregate demand,long-run aggregate supply,and short-run aggregate supply such that the condition of the economy will induce the Federal Reserve to conduct a contractionary monetary policy.Briefly explain the condition of the economy and what the Federal Reserve is attempting to do.

The Fed can increase the federal funds rate by

When the Federal Reserve increases the money supply,people spend more because they now have more money.

Falling interest rates can

When the price of a financial asset ________ its interest rate will ________.

When the Federal Reserve System was established in 1913,its main policy goal was