Chapter 17 Macroeconomics

The Federal Open Market Committee meets ________ times per year

8

The Federal Reserve monetary policy goals of maximum employment means

Keeping the unemployment rate close to the natural unemployment rate

To fight a recession, the Fed can ________ the federal funds rate by ________ securities

Lower; buying

The core inflation rate measures changes in the

Prices of consumer goods except food and fuel

To fight inflation, the Fed can ________ the federal funds rate by ________ securities

Raise; selling

If the Fed raises the federal funds rate, eventually the

AD curve shifts leftward and real GDP decreases

If the Fed lowers the federal funds rate, eventually the

AD curve shifts rightward, increasing real GDP and raising the price level

When the output gap is positive, it represents ________ gap, and when it is negative, it represents ________ gap

An inflationary; a recessionary

A change in monetary policy affects

Consumption expenditure, investment, and net exports

An increase in the federal funds rate results in a(n) ________ in the real interest rate which leads to a(n) ________ in investment

Increase; decrease

When the Fed lowers the federal funds rate, aggregate demand

Increases

When the Fed lowers the federal funds rate, the quantity of money ________ and the supply of loanable funds ________

Increases; increases

Monetary policy produces ripple effects, some of which happen quickly and some that can take years to produce change. Which of the following takes the longest to change?

Inflation rate

When the Fed raises the federal funds rate, the consumption expenditure ________ and investment ________

Decreases; decreases

If the Fed bases its monetary policy on judgments of its policymakers about the current needs of the economy, it is following a

Discretionary policy

Monetary policy decisions are made by the

Federal Open Market Committee (FOMC)

The Fed's choice of monetary policy instrument is the

Federal funds rate

The interest rate banks charge each other on loans of reserves is called the

Federal funds rate

The FOMC is the

Group within the Fed that conducts monetary policy

The Federal Reserve's policy goals include I. maximum employment II. stable prices III. moderate long-term interest rates

I, II, and III

To pursue its monetary policy goals, the Fed could use i. a nominal GDP targeting rule ii. a money targeting rule iii. an inflation targeting rule

i, ii, and iii