Monetary Policy
Suppose the federal reserve decides to increase interest rate pays our reserves, causing excess holdings decreased by 5 billion if the reserve requirement is 15%, how will the money supply change
33.3 billion
The equilibrium interest rate in the economy is (pic)
4 percent
Assume that there is a 25% reserve requirement in the federal reserve by 200 million worth of government securities. If the securities are purchased from the public, then this action has potential to increase bank lending by a maximum of
600 million, but by 800 million if the securities are purchased directly from commercial
It unexpected demand shock shifted aggregate demand to the right. The federal reserved announce the interest rate paid on reserves will the primary tool a monetary policy. Order to move the economy back to long run equilibrium the Fed should
Increased interest rate paid on excess reserves in order to decrease the money supply
Assume that the MPC is 0.8 and the reserve requirement is 0.1. If the federal reserve needs to decrease aggregate demand by 100 billion at the each price level to move the economy back to full employment and the current interest race 5%, then the federal reserve should____ bonds on the open market to equal____(pic)
Sell, $2 billion
Assuming that the federal reserve bank 40 million and government securities to commercial banks and the reserve requirement is 20% then The effect will be reduced to
The money supply by potentially $200 million
Which of the following is the most accurate description of event one monetary authorities increase the size of commercial banks excess reserves
The money supply is increased, which decreases the interest rate causes investment spending, output, and employment to increase
Which of the following statement is correct
The prime rate involves longer, more risky loans in the federal funds rate
The interest rate at which the federal reserve banks lend to commercial banks is called the
discount rate
What policy tool of the federal reserve relies on a bank borrowing to be effective
discount rate
The interest rate that banks use as a reference point for interest rates on a wide range of loans to businesses and individuals is the
prime interest rate
Reduce the federal funds rate, the fed can
buy government bonds from the public
If the Fed once the federal funds rate to be at if1, what quantity of reserve do they need to make available to Banks (pic)
Qf1 (where they meet)
Based on this diagram we can say (pic)
A contraction policy is likely to be more effective than an expansionary policy
Financial markets pay close attention to changes in the federal funds rate because these changes
Affect other interest rates in the economy
The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed reinforce each other to Achieve that objective
Buying government securities and lowering the discount rate
In the graphs, the number in parentheses near the a AD1, AD2, and a AD3 labels indicate the level of investment spending associated with each curve. All figures are in billions a shift in aggregate demand curve from a AD3 to a AD2 can be achieved by federal reserve action to (pic)
Buying government securities in the open market
If the Fed buys government securities from commercial banks in the open market
Commercial banks give the securities to the Fed, and the Fed increases the banks' reserves
The time between when a policy is inacted and when it affects the economy is the ____ lag
Effectiveness
If the Fed sells government securities to the general public in the open market, the
The Fed gives the securities to the public; the public pays for the securities by writing checks that when cleared will decrease commercial bank reserves at the Fed
An expansionary monetary policy may be less effective than a restrictive monetary policy because
commercial banks may not be able to find good loan customers.
If the Fed reduces the reserve requirement from 20% to 60%, excess reserves in the commercial banking system would increase by____any monetary multiplier rise to___(pic)
$40 billion; 6.25
Assume that the MPC is 0.8 and the federal requirement is 0.1. If the Federal Reserve needs to increase aggregate demand by 100 billion at each price level to move the economy back to full employment and the current interest rate is 7%, then the federal reserve should _____ the money supply by_____(pic)
Increase, $20 billion
During the Christmas shopping season, the demand for money increases significantly. To offset the increase in money demand, the Fed must____the money supply___which will put ____pressure on nominal interest rates
Increase; downward
Suppose that the demand for money increases as people anticipate upcoming economic problems. To offset this increase in money demand, the Fed should____the money supply, which would put____pressure on nominal interest rates
Increase; downward