Chapter 15 MACRO
Refer to Figure 15-7. Suppose the Fed lowers its target for the federal funds rate. Using the static AD-AS model in the figure above, this situation would be depicted as a movement from
A to B. [price level and real GDP go UP]
Refer to Figure 15-7. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD-AS model in the figure above, this would be depicted as a movement from
A to B. [price level goes DOWN and real GDP increase (down and to the right)]
Refer to Figure 15-7. Suppose the economy is in a recession and no policy is pursued. Using the basic AD-AS model in the figure above, this situation would be depicted as a movement from
A to E.
Refer to Figure 15-7. Suppose the economy is in short-run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising. Using the static AD-AS model in the figure above, the correct Fed policy for this situation would be depicted as a movement from
C to B.
Refer to Figure 15-7. Suppose the Fed sells Treasury Bills in pursuit of confectionary monetary policy. Using the static AD-AS model in the figure above, this situation would be depicted as a movement from
C to B. [price level and real GDP go DOWN]
If the Fed pursues expansionary monetary policy then
The money supply will increase, interest rates will fall and GDP will rise.
Refer to Figure 15-10. In the figure above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?
an open market sale of Treasury bills [B is placed below and left of A on graph]
Refer to Figure 15-2. In the figure above, the movement from point A to point B in the money market would be caused by
an open market sale of Treasury securities by the Federal Reserve
Suppose the Fed increases the money supply. Which of the following is true?
at the original interest rate, the quantity of money demanded is less than the quantity of money supplied
When the Fed embarked on a policy known as quantitative easing, they
bought longer-term securities than are usually bought in open market operations.
Refer to Figure 15-3. In the figure above, when the money supply shifts from MS1 to MS2, at the interest rate of 3 percent households and firms will
buy Treasury bills.
Suppose that households became mistrustful of the banking system and decide to decrease their checking account balances and increase their holdings of currency. Using the money demand and money supply model and assuming everything else is held constant, the equilibrium interest rate should
increase.
An increase in the interest rate should ________ the demand for dollars and the value of the dollar, and net exports should ________.
increase; decrease
A decrease in interest rates can ________ the demand for stocks as stocks become relatively ________ attractive investments as compared to bonds.
increase; more
An increase in the interest rate
increases the opportunity cost of holding money
The federal funds rate is
interest rate banks charge each other for overnight loans
The situation in which short term interest rates are pushed to zero, leaving the central bank unable to lower them further is known as
liquidity trap
Refer to Figure 15-8. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to
lower interest rates
Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often
lowers interest rates during recessions.
An increase in real GDP can shift
money demand to the right and increase the equilibrium interest rate.
When the Federal Reserve increase the money supply, at the previous equilibrium interest rate households and firms will now have
more money than they want to hold
When the Federal Reserve increases the money supply, at the previous equilibrium interest rate households and firms will now have
more money than they want to hold.
The money demand curve has a
negative slope because an increase in the interest rate decreases the quantity of money demanded.
When the Federal Reserve System was established in 1913, its main policy goal was
preventing bank panics.
Which of the following are goals of monetary policy?
price stability, economic growth, and high employment
The Federal Reserve System's four monetary policy goals are
price stability, high employment, stability of financial markets and institutions, economic growth.
When the Federal Reserve decreases the money supply, at the previous equilibrium interest rate households and firms will now want to
sell Treasury bills.
The Fed can increase the federal funds rate by
selling Treasury bills, which decreases bank reserves.
The money market model is concerned with _____ and the loanable funds market is concerned with _____.
short-term nominal interest rates; long-term real interest rates
If the Fed raises its target for the federal fund rate, this indicates that
the Fed is pursuing a contractionary monetary policy.
Suppose that the economy is producing above potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the peak of the boom. Then
the Fed's contractionary policy will result in too large of a decrease in GDP
If the Fed lowers its target for the federal funds rate, this indicates that
the fed is pursuing an expansionary monetary policy
When the Fed increases the money supply
the interest rate falls and this stimulates investment spending
An increase in the price level causes
the money demand curve to shift to the right
The federal reserves two main monetary policy targets are
the money supply and interest rate
The Fed's two main monetary policy targets are
the money supply and the interest rate.
Refer to Figure 15-1. In the figure, the money demand curve would move from Money demand1 to Money demand2 if
the price level increased
Refer to Figure 15-7. Suppose the Fed sells Treasury Bills in pursuit of contractionary monetary policy. Using the basic AD-AS model in the figure above, this situation would be depicted as a movement from
C to B.
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.
Which of the following will lead to a decrease in the equilibrium interest rate in the economy?
a decrease in GDP
Which of the following would cause the money demand curve to shift to the left?
a decrease in real GDP
Contractionary monetary policy on the part of the Fed results in
a decrease in the money supply, an increase in interest rates, and a decrease in GDP
Contractionary monetary policy causes
aggregate demand to fall and the price level to fall
Refer to Figure 15-5. In the figure above, the movement from point A to point B in the money market would be caused by
an increase in the price level
Refer to Figure 15-9. In the figure above suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?
an open market purchase of Treasury bills [A is placed below and left of B on graph]
Refer to Figure 15-9. In the figure above, suppose the economy is initially at point A. The movement of the economy to point B as shown in the graph illustrates the effect of which of the following policy actions by the Federal Reserve?
an open market purchase of Treasury bills [A is placed below and left of B on graph]
Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
decrease
An increase in the money supply will
decrease the interest rate
An increase in the demand for Treasury bills will
decrease the interest rate on Treasury bills.
An increase in the demand for treasury bills will
decrease the interest rate on Treasury bills.
An increase in interest rates
decreases investment spending on machinery, equipment and factories, consumption spending on durable goods, and net exports.
The interest rate that banks charge other banks for overnight loans is the
discount rate
When the price of a financial asset ________ its interest rate will ________.
falls; rise
expansionary monetary policy refers to the _____ to increase real GDP
fed reserves increasing the money supply and decreasing interest rates
For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the
federal funds rate
Suppose that households become mistrustful of the banking system and decide to decrease their checking accounts and increase their holdings of currency. Using the money demand an money supply model and assuming everything else is held constant, the equilibrium interest rate should
increase
Lowering the interest rate will
increase investment projects by firms
With the federal funds rate near zero and he economy still struggling, the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low. This policy is known as
quantitative easing.
With the federal funds rate near zero and the economy still struggling, in response to already low interest rates doing little to stimulate the economy, the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low. This policy is known as
quantitative easing.
Refer to Figure 15-6. In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to
raise interest rates
Refer to Figure 15-1. In the figure, the money demand curve would move from MD1 to MD2 if
real GDP increased.
Which of the following describes what the Fed would do to pursue an expansionary monetary policy?
use open market operations to buy Treasury bills
If the Fed's policy is contractionary, it will
use open market operations to sell Treasury bills.