Chapter 14

An increase in the quantity of reserves leads to a

fall in the federal funds rate

A worldwide recession reduces the amount of U.S. exports, and as a result, aggregate demand decreases. To move U.S. GDP back to potential GDP, the Fed should

lower the federal funds rate

Suppose that several European countries enter a recession decreasing U.S. exports. To move U.S. GDP back to potential GDP, the Fed should

lower the federal funds rate

During the financial crisis of 2008-2009, the Fed's actions to supply reserves to the banking system was an attempt to

make certain that banks had enough liquidity to avoid collapse

Consumer confidence in the economy rises, and as a result, real GDP increases above potential GDP. To move U.S. GDP back to potential GDP, the Fed should

raise the federal funds rate

If the Fed wished to eliminate an inflationary gap, which of the following would be an appropriate policy?

raise the federal funds rate

A rise in the federal funds rate

raises the long-term real interest rate

An increase in government expenditure shifts the AD curve ________ and an increase in taxes shifts the AD curve ________.

rightward; leftward

If the Fed fears inflation it will undertake an open market ________ of securities, the federal funds rate will ________ and the long-term real interest rate will ________

sale; rise; rise

An open market purchase of government securities by the Federal Reserve shifts the ________ reserves curve ________.

supply of; rightward

Monetary policy is controlled by

the Federal Reserve

If the Fed buys U.S. government securities,

the federal funds rate will fall

In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Bernanke, Chairman of the Federal Reserve stated that "policy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant." If all the banks enacted the policy simultaneously, which of the following expenditure components would increase in the United States? I. exports II. consumption III. investment

II and III only

Monetary policy affects real GDP by

changing aggregate demand