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