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Exam 17: Monetary Policy

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Question 21

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The supporters of a monetary growth rule believe that active monetary policy

A) stabilizes the economy,decreasing the number of recessions and their severity.
B) destabilizes the economy,increasing the number of recessions and their severity.
C) cannot change the inflation rate.
D) cannot change real GDP.

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Question 22

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Use the money demand and money supply model to show graphically and explain the effect on interest rates of the Federal Reserve's open market sale of Treasury securities.

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An open market sale of Treasur...

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Question 23

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A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.

Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.

What is a banking panic,and what role did banking panics play in the decision by Congress to establish the Federal Reserve?

The Federal Reserve's two main ________ are the money supply and the interest rate.

The Federal Reserve System's four monetary policy goals are

If the Fed orders a contractionary monetary policy,describe what will happen to the following variables relative to what would have happened without the policy: a.The money supply b.Interest rates c.Investment d.Consumption e.Net Exports f.The aggregate demand curve g.Real GDP h.The price level

Figure 17-5 -Refer to Figure 17-5.Suppose the economy is in a recession and no policy is pursued.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

The Federal Reserve cannot target both the money supply and the interest rate because it does not control

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

Expansionary monetary policy enacted during a recession will cause the inflation rate to increase.

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.

Consider the Taylor rule for the target of the federal funds rate.Suppose the equilibrium real federal funds rate is 2 percent,the target rate of inflation is 3 percent,the current inflation rate is 3 percent,real GDP equals potential real GDP,and the weights are 1/2 for the inflation gap and the output gap.Using the Taylor rule,what does the target for the federal funds rate equal? Next,if the Federal Reserve lowered the target for the inflation rate to 1 percent,how much would the target for the federal funds rate change?

Figure 17-5 -Refer to Figure 17-5.Suppose the Fed lowers its target for the federal funds rate.Using the static AD-AS model in the figure above,this situation would be depicted as a movement from

If the amount you owe on your house is greater than the price of the house,you have

An increase in the interest rate should ________ the demand for dollars and the value of the dollar,and net exports should ________.

The Fed can directly lower the inflation rate.

Which of the following is true?

A financial asset is considered a security if