question

The Taylor rule for federal funds rate targeting does which of the? following?

answer

It links the? Fed's target for the federal funds rate to economic variables.

question

According to the Taylor? Rule, if the Fed reduces its target for the inflation? rate, the result will be

answer

a higher target federal funds rate.

question

The federal funds rate

answer

is the rate that banks charge each other for? short-term loans of excess reserves.

question

The primary reason for this change in the sources of mortgage finance was? _____; the consequence of this change was also? _____ in mortgage rates.

answer

the development of a secondary mortgage? market; a decrease

question

One of the goals of the Federal Reserve is price stability. For the Fed to achieve this? goal,

answer

the rate of inflation should be? low, such as? 1% to? 3%, and should be fairly consistent

question

Which of the following is not one of the monetary policy goals of the Federal Reserve? ("the Fed")?

answer

a high foreign exchange rate of the U.S. dollar relative to other currencies

question

The? Fed's strategy of increasing the money supply and lowering interest rates in order to increase real GDP is called

answer

expansionary monetary policy.

question

Why would the Fed intentionally use contractionary monetary policy to reduce real? GDP?

answer

The Fed intends to reduce? inflation, which occurs if real GDP is greater than potential GDP.

question

Which of these variables are the main monetary policy targets of the? Fed?

answer

the money supply and the interest rate

question

What is the relationship between the federal funds rate falling and the money supply? increasing?

answer

to decrease the federal funds? rate, the Fed must increase the money supply.

question

How does lowering the target for the federal funds rate? "pour money" into the banking? system?

answer

To increase the money? supply, the Fed buys bonds on the open? market, which increases bank reserves.

question

If the Federal Open Market Committee? (FOMC) decides to increase the money? supply, it orders the trading desk at the Federal Reserve Bank of New York to

answer

buy U.S. Treasury securities.

question

If the FOMC orders the trading desk to sell Treasury? securities,

answer

the money supply curve will shift to the? left, and the equilibrium interest rate will rise.

question

All of the following are arguments against an explicit inflation targeting rule for monetary policy except?:

answer

An explicit target is easier to understand by households and firms which makes monetary policy more transparent.

question

In the graph of the money market shown on the? right, what could cause the money supply curve to shift from MS1 to MS2??

answer

The Fed decreases the money supply by deciding to sell U.S. Treasury securities.

question

In the graph of the money market shown on the? right, what could cause the money demand curve to shift from MD1 to MD2??

answer

Both? (a) and? (c).

question

What is a banking? panic?

answer

A situation in which many banks experience runs at the same time.

question

Which of the following best explains how the Federal Reserve acts to help prevent banking? panics?

answer

The Fed acts as a lender of last? resort, making loans to banks so that they can pay off depositors

question

Suppose the economy is in equilibrium in the first period at point A. In the second? period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD 2AD2 to AD Subscript 2 comma policyAD2, policy and reach equilibrium? (point C) in the second? period?

answer

Open market purchase of government securities

question

Which of the following is not a viable monetary policy target for the? Fed?

answer

The money demand.

question

Which of the following statements is true about the? Fed's monetary policy? targets?

answer

The Fed is forced to choose between the interest rate and the money supply as its monetary policy target.

question

This statement is true because the Chairman of the Fed

answer

has the ability to influence interest rates for the? world's top reserve currency.

question

When the Federal Reserve increases the discount rate as a part of a contractionary monetary? policy, there? is:

answer

A decrease in the money supply and an increase in the interest rate.

question

If the Fed is too slow to react to a recession and applies an expansionary monetary policy only after the economy begins to? recover, then

answer

inflation will be higher than if the Fed had not acted

question

A countercyclical policy is one that

answer

is used to attempt to stabilize the economy.

question

In the? quote, when the official says? "the money stays in? banks," he is referring to.... in the reserves in banks.

answer

an increase

question

But the real problem was that banks were not...the reserves.

answer

lending

question

The reason for this may have been a lack of

answer

borrowers

question

What is? "quantitative easing"? Quantitative easing involved the? Fed's

answer

buying longer term Treasury securities that are not usually involved in open market operations.

question

What is? "Operation Twist"? ?"Operation Twist" refers to

answer

the? Fed's program to purchase? $400 billion in? long-term Treasury securities while selling an equal amount of? shorter-term Treasury securities.

question

Which of the following was the? Fed's objective in using? "quantitative easing" and? "Operation Twist"?

answer

All of the above.

question

n the figure to the? right, which of the following events is most likely to cause a shift in the money demand? (MD) curve from MD1 to MD2 ?(Point A to Point ?C)??

answer

Increase in real GDP or increase in the price level

question

When the Fed conducts an open market? purchase, the Fed ..... and the money supply

answer

buys securities from banks increases

question

When the Fed conducts an open market? purchase, the interest rate should

answer

decrease

question

When he said? "to remove the? punchbowl," he meant to engage in... policy

answer

contractionary

question

In terms of the? economy, "just as the party gets? going" refers to a situation in which real GDP....... potential? GDP, which will result in .... the inflation rate

answer

is greater than an increase in

question

What did the article mean by a? "Lehman moment"? A? "Lehman moment" meant

answer

a deepening of the financial crisis brought about by bankruptcy of a major bank.

question

Why might European governments have felt the need to support their banks in order to avoid another Lehman? moment

answer

The European governments wanted to avoid wider economic repercussions resulting from bank failures that could undermine the financial positions of other firms and lead to a further reduction in prices of financial assets.

question

"I understand why the Fed uses expansionary policy but I? don't understand why it would ever use contractionary policy. Why would the government ever want the economy to? contract?" The government would want the economy to contract when real GDP is

answer

above potential GDP and the price level is rising

question

Monetary policy is defined? as:

answer

The actions the Federal Reserve takes to manage the money supply and interest rates.

question

Which of the following is not an issue with using active monetary policy to reduce business? cycles?

answer

Real GDP and employment changes from monetary policy actions can move in a countercyclical manner.

question

If the Fed would no longer have a specific target for the money? supply, it would be targeting the

answer

federal funds rate.

question

The Fed gave up targeting the money supply because

answer

the relationship between monetary aggregates and other economic variables was becoming unreliable.

question

An increase in interest rates affects aggregate demand by

answer

shifting the aggregate demand curve to the? left, reducing real GDP and lowering the price level.

question

As the interest rate? increases,

answer

?consumption, investment, and net exports? decrease; aggregate demand decreases.

question

As the interest rate? increases,

answer

?consumption, investment, and net exports? decrease; aggregate demand decreases.

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