Macro Quiz 2

If the required reserve ratio is 25 percent, the money multiplier is

4

During the 1970s, the Fed often reacted to negative oil shocks by increasing the money supplyand focusing on

During the 1970s, the Fed often reacted to negative oil shocks by increasing the money supplyand focusing on

What would be the likely outcome if the Federal Reserve decided to lower the required reserveration

The money multiplier would increase and M1 would expand

Which of the following shocks can the Fed deal with most effectively

a shock to aggregate demand

In the short run, if the Federal Reserve responds to a negative real shock with an increase inmoney supply growth, the inflation rate will increase because of

both the real shock and the increased money supply growth.

The monetary base (MB) refers to

currency plus total reserves at the Fed.

M2 includes:

currency, checkable deposits, savings deposits, money market mutual funds, and small-timedeposits

If businesses react to a pessimistic outlook and decrease spending, the Fed can counteract this by

increasing money supply, which may lower real interest rates and encourage borrowing

Sometimes economists and analysts worry about the Federal Reserve over-stimulating the economy because such overstimulation will lead to

rising inflation

The Federal Reserve can influence the economy by shifting

the AD curve

The Fed's job in manipulating monetary policy is made harder by the fact that

the Fed has to operate in real time and information on recessions usually becomes availablewith a lag