Chapter 14 (Macro)

An open market sale by the Fed leads to A) an increase in the number of banks. B) an immediate change in aggregate supply. C) a reduction in the federal funds rate. D) a shift in the demand curve for reserves. E) a decrease in consumption F) a decrease in investment G) a reduction in the exchange rate H) an increase in the money supply I) a decrease in the discount rate

a decrease in consumption a decrease in investment

In November 2008, the Reserve Bank of India (RBI) lowered its "repo" rate, the rate at which it lends to banks, from 8 percent to 7.5 percent. Only two weeks earlier, it had lowered the rate from 9 percent to 8 percent. The repo rate is equivalent to the discount rate in the US. The Reserve Bank of India was lowering its rate to fight _________(a recession/an expansion)

a recession

An open market purchase by the Fed leads to A) an increase in the number of banks. B) an immediate change in aggregate supply. C) a reduction in the federal funds rate. D) a shift in the demand curve for reserves. E) a decrease in consumption F) an increase in investment G) a reduction in the exchange rate H) an increase in the money supply I) a decrease in the discount rate

a reduction in the federal funds rate an increase in investment a reduction in the exchange rate an increase in the money supply

In order to fight a recession, the Fed will ________(increase/decrease) the federal funds rate and thereby ________ (increase/decrease) the quantity of money.

decrease increase

The federal funds rate _____(increases/decreases) during recessions

decreases

Suppose the economy is in an expansion and the Fed changes the federal funds rate. Then, real GDP _____(increases/decreases) and the price level _____(increases/decreases)

decreases decreases

If the Fed sells U.S. government securities, the price of government bonds _____(increases/decreases) and the interest rate on bonds_______(increases/decreases)

decreases increases

In the market for reserves, an increase in the supply of reserves results in a ____(fall/rise) in the equilibrium ________(federal funds rate/real wage rate/money wage rate).

fall federal funds rate

If the U.S. interest rate rises (while interest rates in other countries stay the same), the exchange rate _____(rises/falls) and net exports ______(increase/decrease)

rises decrease

Suppose that real GDP is currently $17 trillion, while potential output is $16 trillion. In order to bring output back to its potential level, the central bank should: a. Increase interest rates b. Reduce government spending c. Reduce interest rates d. Decrease taxes

Increase interest rates

Suppose that the economy is currently producing goods and services worth $7 billion while potential output is $8 trillion. In order to bring output back to its potential level, the central bank should: a. Increase interest rates b. Reduce government spending c. Reduce interest rates d. Decrease taxes

Reduce interest rates

If the central bank wants to adopt an expansionary monetary policy through an open market operation, it will ____(buy/sell) government bonds. This will _____(increase/decrease) bank reserves and ______(increase/decrease) the stock of money. As a result, the ______(federal funds rate/discount rate) ______(increases/decreases). This leads to a(n) _____________(increase/decrease) in _____________(aggregate consumption/government spending) and in ______________(investment/saving). Further, the exchange rate ______(decreases/increases), thus net exports _________(increase/decrease). The AD curve ___________(moves leftward/moves rightward/ is not affected), the equilibrium output level in the short run is ____________(higher/lower).

buy increase increase federal funds rate decreases increase aggregate consumption investment decreases increase moves rightward higher

If the Fed wants to lower the federal funds rate, it can A) decrease the budget deficit B) sell government securities in the open market C) instruct banks to print more money D) buy government securities on the open market

buy securities on the open market

When the Fed changes the federal funds rate, all of the following will change except: a. government spending b. net exports c. investment d. consumption

government spending

In November 2008, People's Bank of China announced that it was lowering by 1.08 percentage points its policy rate in response to the slowdown in the Chinese economy. This rate is the Chinese equivalent of the federal funds rate in the United States. This policy ________(increases/decreases) the supply of loanable funds. The exchange rate will ______(increase/decrease), imports will ______ (increase/decrease) and exports will ______(increase/decrease)

increases decrease decrease increase

If the central bank wants to adopt a contractionary monetary policy through an open market operation, it will ____(buy/sell) government bonds. This will _____(increase/decrease) bank reserves and ______(increase/decrease) the stock of money. As a result, the ______(federal funds rate/discount rate) ______(increases/decreases). This leads to a(n) _____________(increase/decrease) in _____________(aggregate consumption/government spending) and in ______________(investment/saving). Further, the exchange rate ______(decreases/increases), thus net exports _________(increase/decrease). The AD curve ___________(moves leftward/moves rightward/ is not affected), the equilibrium output level in the short run is ____________(higher/lower).

sell decrease decrease federal funds rate increase decrease aggregate consumption investment increases decrease moves leftward lower

If the Fed wants to raise the federal funds rate, it needs to A) buy government securities in order to increase the quantity of reserves B) sell government securities in order to decrease the quantity of reserves C) buy government securities in order to decrease the quantity of reserves D) sell government securities in order to increase the quantity of reserves

sell government securities in order to decrease the quantity of reserves

The Fed engages in open market operations and sells government securities. This shifts the ________(supply of/demand for) reserves curve ________(rightward/leftward). The result is a ______(lower/higher/unchanged) federal funds rate

supply of leftward higher