Chapter 34 Review

While a television news reporter might state that "Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent," a more precise account of the Fed's action would be as follows:

"Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent."

Which of the following shifts in aggregate demand and aggregate supply would have an indeterminate effect on equilibrium real GDP

An increase in aggregate supply and a decrease in aggregate demand

In the short run, a decrease in the money supply causes interest rates to

Increase and aggregate demand to shift left

Which of the following explain the shape of the aggregate-demand curve?

Wealth effect amd interest-rate effect

Which of the following shifts aggregate demand to the right?

an increase in the money supply

Other things equal, in the short run a higher price level leads households to

decrease consumption and firms to buy fewer capital goods.

When the fed sells government bonds, the reserves of the banking system

decrease, so the money supply decreases

If the Fed conducts open-market sales, the money supply

decreases and aggregate demand shifts left and gdp decreases

In recent years, the Federal Reserve has conducted policy by setting a target for the

federal funds rate

Which among the following assets is the most liquid

funds in a checking account

If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

increases by the change in the nominal interest rate.

The opportunity cost of holding money

increases when the interest rate increases, so people desire to hold less of it.

The most important reason for the slope of the aggregate demand curve is that as price level

increases, interest rates increase, and investment decreases

An increase in the us interest rate

leads to an appreciation of the US dollar

The interest rate falls if

money demand shifts left or money supply shifts right

In the graph of the money market, the money supply curve is

vertical. It shifts rightward if the Fed buys bonds.