econ 175 problem set 9

An increase in the interest rate causes

a movement up along the money demand curve.

Suppose the economy begins in long run equilibrium. ​ Then, suppose that firms expect profits to decrease in the near future. a. Which curve will shift and in which​ direction? b. What will happen to​ Y, P, and the unemployment​ rate? c. Is the new equilibrium​ above, below, or equal to full​ employment? d. Is the unemployment rate​ above, below, or equal to the Natural Rate of​ Unemployment? e. Is the economy experiencing any added​ inflation; and if​ so, is it​ cost-push or​ demand-pull inflation? f. If the Fed uses monetary policy to correct the economy​ (assume that they neutralize the​ shock), which curve will shift and in which​ direction? g. What are 3 monetary policies the Fed could use to correct the​ economy?

a. AD will shift left b. Y will decrease, P will decrease, ue will increase c. below full d. above NRU e. N/A the economy is not experiencing any added inflation f. AD shifts right g. decrease discount rate, decrease reserve requirements, buy bonds

If the Fed's policies aim to increase aggregate demand, the Fed must fear

recession

Open market operations are used

to change the quantity of reserves in the banking system

The Federal Reserve has​ ________ regional Federal Reserve banks and​ ________ members of the Board of Governors.

12; 7

The required reserve ratio ranges from

0 to 10 percent

Of the​ Fed's policy​ tools, changing the reserve requirement is A. the strongest and least frequently used tool. B. the most important and most frequently used tool. C. the weakest tool. D. the weakest tool and least frequently used tool.

A. the strongest and least frequently used tool. This is the correct answer.

The Federal Open Market Committee consists of all the following people EXCEPT A. the Board of Governors of the Federal Reserve System. B. the chairman of the​ President's Council of Economic Advisors. C. four presidents of Federal Reserve​ Banks, on a rotating basis. D. the President of the Federal Reserve Bank of New York.

B. the chairman of the​ President's Council of Economic Advisors.

The Federal Open Market Committee A. meets weekly to set Fed policy. B. always includes the president of the Federal Reserve Bank of New York as a member. C. does not include any members of the Board of Governors. D. has 7 voting members.

B. always includes the president of the Federal Reserve Bank of New York as a member

Who is the current Chair of the Federal Reserve Board of Governors?

Jerome Powell

The Board of Governors of the Federal Reserve System is

appointed by the President of the United States and confirmed by the U.S. Senate.

The three main policy tools the Federal Reserve System uses to conduct monetary policy are setting the

discount​ rate, open market​ operations, and setting the required reserve ratio.

True or false The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates

false

The federal funds rate A. is determined directly by firm demand for funds. B. is determined administratively by the Fed. C. is determined by the supply of and demand for bank reserves. D. is determined directly by household demand for funds.

is determined by the supply of and demand for bank reserves.

The leadership of the Federal Reserve System is provided by

the Board of Governors

The rate of interest banks charge other banks for overnight loans of reserves is

the federal funds rate