PS9 – Flashcards

When the Federal Reserve decreases the discount rate, the money supply will ________.

Which of the following is NOT one of the policy tools the Fed uses to control the money supply? A. Reserve requirements. B. Open market operations. C. Moral suasion. D. Discount policy.

Which policy tool (used to control the money supply) is the most important?

When the Federal Reserve purchases Treasury securities in the open market,

When the Federal Reserve sells Treasury securities in the open market,

Suppose that you are a bank manager, and the Federal Reserve raises the required reserve ratio from 10% to 12%. What actions would you need to take? As your actions and those of other bank managers reduced the amount of loans made, we would expect that the money supply would end up ________.

When the Federal Reserve decreases the required reserve ratio,

Which of the following is NOT a policy tool the Federal Reserve uses to manage the money supply? A. Reserve requirements. B. Discount policy. C. Open market operations. D. Changing Income tax rates.

In addition to the Federal Reserve Bank, what other economic actors influence the money supply?

Which of the following is a monetary policy tool used by the Federal Reserve Bank? A. Decreasing the rate at which banks can borrow money from the Federal Reserve. B. Increasing the reserve requirement from 10% to 12.5%. C. Buying $500 million worth of government securities, such as Treasury bills. D. All of the above.

The Fed can increase the federal funds rate by

"The Fed has been pouring more money into the banking system by cutting the target federal funds rate to 0 to 0.25 percent in December 2008." What is the relationship between the federal funds rate falling and the money supply increasing? How does lowering the target for the federal funds rate "pour money" into the banking system?

Which interest rate does the Fed target?

The federal funds rate

When the Fed conducts an open market purchase, the Fed ________, the money supply ________, and the interest rate should ________.

The opportunity cost of holding money ________ when moving down along the money demand curve.

William McChesney Martin (FR chairman from 1951-70) said, "The role of the Federal Reserve is to remove the punchbowl just as the party gets going." By "to remove the punchbowl," he meant to engage in ________ policy. In terms of the economy, "just as the part gets going" refers to a situation in which real GDP ________ potential GDP, which will result in ________ the inflation rate.

Suppose the economy is initially in long-run equilibrium. The Fed decides to increase the required serve ratio. In the short-run, this contractionary monetary policy will cause:

Changes in interest rate affect AD. Which of the following is/are affected by changes in interest rates and, as a result, impacts AD? A. The value of the dollar B. Business investment projects C. Government spending D. Consumption of durable goods

An increase in interest rates affects aggregate demand by

As the interest rate increases,

If the Fed believes the economy is about to fall into recession, it should

If the Fed believes the inflation rate is about to increase, it should

Contractionary monetary policy: The price level and real GDP both ________.

Expansionary monetary policy: The price level and real GDP both ________.

Suppose the economy is initially in long-run equilibrium. The Fed decides to sell bonds. In the short-run, this contractionary monetary policy will cause:

"The challenge of monetary policy is to interpret data on the economy and financial markets with an eye to anticipating future inflationary forces and to countering them by taking action in advance." Why should the Fed take action in anticipation of inflation? Why not just wait until the increase in the inflation rate has occurred? The answer is that the Fed does not want a higher inflation rate to persist because, if it does, the short-run Phillips curve may shift ________. This would mean that for any given rate of unemployment, the associated inflation rate would be ________, and for any given inflation rate, the associated rate of unemployment would be ________.

When Federal Reserve Chairman Ben Bernanke said that the public's expectations of inflation could "become embedded in wage and price decisions," he meant

As the public starts expecting a higher inflation rate, the short-run Phillips curve will ________.

Which of the following will not have an effect on the long-run Phillips curve? A. Extended periods of high unemployment. B. Changes in unemployment insurance. C. Changes in monetary policy. D. Changes in demographics.

The current inflation rate and then expected inflation rate are both 4%. The current unemployment rate and the natural rate of unemployment are both 5%. What is the effect on the economy of a severe (adverse) supply shock? If the Federal Reserve keeps monetary policy unchanged, eventually the unemployment rate will be:

Suppose the inflation rate has been 15% for the past four years. The unemployment rate is currently at the natural rate of unemployment of 5%. The Federal Reserve decides that it wants to permanently reduce the inflation rate to 5%. To do this, the Fed would use a ________ policy. As a result of this policy, the unemployment rate will be ________ the natural rate of 5% and the inflation rate will be edging ________ slowly. If the Fed's policy is successful, the inflation rate will be ________ and the unemployment rate will be ________.

Which of the following statements is most accurate regarding fiscal policy and monetary policy? A. Fiscal policy includes changes in government spending and taxes and is controlled by the federal government. Monetary policy includes changes in the money supply and interest rates and is controlled by the Federal Reserve. Both policies are intended to achieve macroeconomic objectives. B. Fiscal policy includes changes in government spending and interest rates and is controlled by the federal government. Monetary policy includes changes in the money supply and taxes and is controlled by the Federal Reserve. Both policies are intended to achieve macroeconomic objectives. C. Fiscal policy includes changes in government spending and taxes and is controlled by the Federal Reserve. Monetary policy includes changes in the money supply and interest rates and is controlled by the federal government. Both policies are intended to achieve macroeconomic objectives. D. Fiscal policy includes changes in interest rates and taxes and is controlled by the federal government. Monetary policy includes changes in the money supply and government spending and is controlled by the Federal Reserve. Both policies are intended to achieve macroeconomic objectives.