Econ Ch.13
The fundamental objective of monetary policy is to assist the economy in achieving
A full-employment, noninflationary level of total output
The conduct of monetary policy in the United States is the main responsibility of the:
Federal Reserve
The interest rate that lending depository institutions charge borrowing institutions for the use of excess reserves is the:
Federal funds rate
The Federal Reserve has adopted a monetary policy that targets
The Federal Funds Rate
The Board of Governors of the Federal Reserve System can increase commercial bank reserves by:
buying government securities in the open market
The Federal Reserve can increase aggregate demand by
buying government securities in the open market
Suppose FED is targeting to fight inflation. As a consequence, we can expect money supply in the economy to:
decrease
Suppose the FED wants to decrease reserve auctions. As a consequence, we can expect equilibrium real GDP in the economy will:
decrease
Suppose the economy's potential GDP is 300 billion and equilibrium real GDP is 250 billion. Suppose the FED decides to implement appropriate monetary policy to eliminate the gap. As a consequence, we can expect interest rates in the economy to:
decrease
All else equal. if nominal GDP in the economy decreases. As a consequence, we can expect an interest rate in the economy will
decrease When nominal GDP decreases, transaction demand for money decreases which leads to an overall decrease in money demand. When money demand decreases, the interest rate decreases based on the money market equilibrium graph.
Suppose the economy is in a deep recession. To address this scenario, FED will target to
decrease interest rate
Suppose the economy is in the deep recession. To address this scenario, FED will target to
increase money supply
The asset demand for money and the rate of interest are:
inversely related
The interest that is paid by term auction winners
is the same for all bidders
The transaction demand for money and the rate of interest are:
unrelated
Assume that each dollar held for transaction purposes is spent on the average ten times per year to buy final goods and services. The following table represents asset demand for money. If the economy's nominal GDP is $6000 billion and the supply of money is $900 billion, equilibrium interest rate is equal to Interest Rate Asset Demand(billions) 14%. $200 13%. 300 12%. 400 11%. 500
13%
Assume that each dollar held for transaction purposes is spent on an average ten times per year to buy final goods and services. The following table represents the asset demand for money. Interest Rate. Asset Demand (Billions) 8%. $200 7%. 300 6%. 400 5%. 500 If the economy's nominal GDP is $6000 billion and the supply of money is $1000 billion, equilibrium interest rate is equal to
6% 6000/1000 = 6
When nominal GDP is $800 billion and, on average, each dollar is spent four times in the economy over a year, the quantity of money demanded for transactions purposes will be:
$200 billion Transaction demand for money = nominal GDP/ number of times dollar spent 200= 800/4
When the Federal Reserve uses open-market operations to lower the Federal funds rate several times over a year, it is pursuing:
An expansionary money policy
The Federal Reserve could decrease the interest rate by:
Buying government bonds on the open-market When Federal Reserve purchases bonds, money supply in the economy increases leading to decrease in interest rates
Raising the reserve ratio
Changes excess reserves to required reserves
Assume the Fed creates excess reserves in the banking system by buying government bonds, but banks do not make more loans because economic conditions are bad. This situation is a problem of:
Cyclical Asymmetry
A decrease in the rate of interest would:
Decrease the opportunity cost of holding money
Which one of the following is to be a tool of monetary policy for altering the reserves of commercial banks?
Discount rate
Aggregate demand tends to be increased when the Federal Reserve System sells government securities in the open market:
False
The most frequently used instrument of the Federal Reserve System to control changes in the money supply is the required reserve ratio:
False
The transactions demand for money will shift to the :
Left when nominal GDP decreases
The Federal funds rate is the rate that banks charge other banks for overnight loans of excess reserves of Federal Reserve Banks
True
All else equal, if nominal GDP in the economy increases. As a consequence, we can expect interest rate in the economy will:
increase
Suppose FED wants to buy Treasury securities. As a consequence, we can expect money supply in the economy will:
increase
Suppose FED wants to decrease the required reserve ratio. As a consequence, we can expect money supply in the economy will:
increase
Suppose FED wants to increase required reserve ratio. As a consequence, we can expect interest rates in the economy will
increase
When the Federal Reserve Banks decide to buy government bonds from banks and the public, the supply of reserves in the Federal funds market will
increase
Suppose FED wants to decrease reserve auctions. As a consequence, we can expect the interest rate in the economy in economy will:
increase The decrease in reserve auction leads to a decrease in money supply causing the interest rate to increase
When the economy is experiencing inflation higher than the targeted inflation, FED should:
increase discount rate
The most frequently used monetary device for achieving price stability is:
open-market operations
Lowering the reserve ratio changes:
required reserves to excess reserves
There is an asset demand for money primarily because of which function of money?
store of value
If the Fed wants commercial banks to borrow and expand their reserves by a specific amount, what monetary policy tool best guarantees that it will happen?
term auction facility
If the Fed wants commercial banks to borrow and expand their reserves by a specific amount, what monetary policy tool best guarantees that it will happen?
term-auction facility
