Macro Chapter 15 (Hubbard)
In the figure to the right, when the money supply increased from MS1 to MS2, the equilibrium interest rate fell from 4% to 3%. Why? (Homework#5)
A. Increased demand for Treasury securities drives up their prices. B. Increased demand for Treasury securities drives down their interest rate. C. Initially, firms hold more money than they want relative to other financial assets. D. ALL OF THE ABOVE
The figure to the right illustrates the economy using the Dynamic Aggregate Demand and Aggregate Supply Model. If actual real GDP in 2006 occurs at point B and potential GDP occurs at LRAS06, we would expect the Federal Reserve Bank to pursue a contractionary monetary policy. If the Fed's policy is successful, what is the effect of the policy on the following macroeconomic indicators? (homework #14)
Actual real GDP decreases. Potential real GDP does not change. Price level decreases. Unemployment increases.
Consider the figures below and determine which is the best description of what causes the shift from AD1 to AD2. (homework #11)
Example A shows a contractionary monetary policy. The price level and real GDP both fall. Example B shows an expansionary monetary policy. The price level and real GDP both rise.
The figure to the right illustrates a dynamic AD-AS model Suppose the economy is in equilibrium in the first period at point A. In the second period, the economy reaches point B. We would expect the Fed to pursue what type of policy in order to move AD2 to AD2, policy and reach equilibrium (point C) in the second period? If the Federal Reserve Bank's policy is successful, what is the effect on the following macroeconomic indicators?
Expansionary monetary policy Actual real GDP: increases Potential real GDP: does not change Price level: increases Unemployment: decreases
In the figure to the right, which of the following events is most likely to cause a shift in the money demand (MD) curve from MD1 to MD2 (Point A to Point C)? (homework #8)
Increase in real GDP or increase in the price level
Which of the following is NOT a monetary policy goal of the Federal Reserve bank (the Fed)?
Low prices
Suppose the economy is in equilibrium in the first period at point A. In the second period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD2 to AD2, policy and reach equilibrium (point C) in the second period? (What policy will increase the price level and increase actual real GDP?)
Open market purchase of government securities
The figure to the right illustrates a dynamic AD-AS model. Suppose the economy is in equilibrium in the first period at point A. In the second period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD2 to AD2, policy and reach equilibrium (point C) in the second period? (homework #16)
Open market purchase of government securities.
If the Federal Reserve is late to recognize a recession and implements an expansionary policy too late, the result could be an increase in inflation during the beginning of the next phase. Even though the goal had been to reduce the severity of the recession, the poor timing caused another problem: inflation. This is an example of what type of policy?
Procyclical policy
The Fed uses monetary policy to offset the effects of a recession (high unemployment and falling prices when actual real GDP falls short of potential GDP) and the effects of a rapid expansion (high prices and wages). Can the Fed, therefore, eliminate recessions?
The Fed can only soften the magnitude of recessions, not eliminate them.
As the figure to the right indicates, the Fed can affect both the money supply and interest rates. However, in recent years, the Fed targets interest rates in monetary policy more often than it does the
The federal funds rate
Changes in interest rates affect aggregate demand. Which of the following is affected by changes in interest rates and, as a result, impacts aggregate demand? (Mark all that apply.)
The value of the dollar, Consumption of durable goods, Business investment projects
When the Federal Open Market Committee (FOMC) decides to increase the money supply, it ? U.S. Treasury securities. If the FOMC wishes to decrease the money supply, it ? U.S. Treasury securities.
buys, sells
n the figure to the right, the opportunity cost of holding money decreases when moving from Point A to Point B on the money demand curve. (homework 7)
decreases
The federal funds rate
is the rate that banks charge each other for short-term loans of excess reserves.
The ? is considered the most relevant interest rate when conducting monetary policy.
short-term nominal interest rate
