Macro Chapter 13:

Suppose the Fed commits itself to the use of the Taylor rule​ (shown below) to set the federal funds rate. Federal funds rate = Long run target + 1.5 (Inflation rate-Inflation Target) + 0.5.(Output Gap) If the economy is currently hitting the​ Fed's inflation target and GDP exactly equals the trend​ GDP, then the Fed will set the federal funds rate at ______ %. ​(Enter your response with no rounding​.) Now suppose the economy slows down​, causing the actual inflation rate to decrease to 0.5 percent and the economy to fall 2.5 percent below trend GDP. In this​ case, the Fed will seek to set the federal funds rate at ________ %. (Enter your response with no rounding​.) To achieve its target for the federal funds​ rate, the Fed may​ ____________. ​(Check all that apply​.) A. decrease the interest rate paid on reserves deposited at the Fed B. Decrease the reserve equipment C. Decrease corporate taxes

1. 2.5% 2. 0% 3. A and B

Suppose the Fed wants to implement an ​anti-inflation monetary policy. For each of the tools listed​ below, indicate the direction the​ Fed's action should take. 1. The Fed should conduct an open market ___ of Treasury bonds 2. The Fed should _______ the reserve equipment 3. The Fed should _______ the interest rate paid on reserves deposited at the Fed 4. The Fed should _____ leading from its discount window

1. Sale 2. Raise 3. Increase 4. Contract

The core ingredients of expansionary monetary policy are shown below. These events impact the real economy and occur as shown by the sequence on the right. For each of the events described​ below, insert the number ​(1minus−​4) to give each event its correct position in the sequence. Expansionary Monetary Policy 1 --> 2 ---> 3 ---> 4 _____ Labor demand shifts right _____ Long-term interest rates fall _____ Demand for goods and services increases _____ Short-term interest rates fall and access to credit expands

4, 2, 3, 1

Suppose the government enacts a stimulus program composed of ​$600600 billion of new government spending and ​$300300 billion of tax cuts for an economy currently producing a GDP of ​$15 comma 00015,000 billion. If all of the new spending occurs in the current year and the government expenditure multiplier is 1.61.6​, the expenditure portion of the stimulus package will add ______% points of extra growth to the economy. ​ If the government taxation multiplier is 0.8, the tax cut portion of the stimulus package will add _____ % points of extra growth to the economy. As a result of the stimulus​ program, the​ economy's GDP was increased by ___ % points over its value without the program. If the​ economy's actual growth was 4%, then without the stimulus​ package, growth would have been negative _____ points.

6.4% 1.6% 8% -4%

Scenario: The following figure shows the federal funds market. Assume that the market of reserves is in equilibrium at $500 billion in reserves and a 3% federal funds rate. If the Fed completes an open market sale of bonds that changes the quantity of reserves by $400 billion, then the federal funds rate will _______. a. Decrease to 1% b. Increase to 5% c. Remain at 3% d. More information is needed to determine the new federal funds rate

b. Increase to 5%

Expansionary fiscal policy uses​ ________ government spending and​ ________ taxes to increase aggregate economic activity. a. lower;lower b. higher;lower c. higher;higher d. lower;higher

b. higher;lower

How do expansionary policies differ from contractionary​ policies? a. Expansionary policies seek to increase economic growth and increase​ employment, while contractionary policies seek to reduce the risk of excessive price inflation. b. Expansionary policies seek to shift the labor demand curve to the​ right, while contractionary policies seek to shift it to the left. c. Expansionary policies seek to reduce the severity of​ recessions, while contractionary policies seek to slow down the economy when it grows too fast. d. All of the above e. Only A and C are correct

d. All of the above

The federal funds rate is the interest rate that​ ________. a. the Fed uses to lend money to households b. banks use to lend money to the Fed c. the Fed uses to lend money to business firms d. banks use to make loans to one another

d. banks use to make loans to one another