econ test 3

if the nominal interest rate is 4.8 percent and the annual inflation rate is 1.8 percent, what is the real interest rate?

3.0 percent

monetary policy

Federal reserve

Inflation equation

Money supply - real gdp = inflation

what is the difference between nominal and real interest rates?

The real interest rate is the nominal interest rate adjusted for inflation and the nominal interest rate you pay on a loan.

how does expansionary policies differ from contractionary policies?

all of the above. expansionary policies shift labor demand to right, increase growth and increase employment, reduce severity of recessions . contractionary policies shift to left, reduce excessive price inflation, and slow down the economy when it grows too fast.

if the real interest rate were to increase this would result in a movement along the credit demand curve or shift of the credit demand curve?

along (think price)

The multiplier is

an economic mechanism that causes an initial shock to be amplified by follow on effects

an open market operation is

an exchange between private banks and the federal reserve where the fed buys or sells bonds to private banks

counter-cyclical policy that seeks to raise GDP growth and the level of employment is appropriate when

b and c are correct. the nation has an internal trade surplus and excessively pessimistic sentiments about the economy are prevalent.

if a bank has insufficient reserves to conduct its day to day business, what can that bank do to shore up its reserves?

borrowing reserves from other banks who have excess reserves

Money supply is defined to include

cash and bank deposits

what is the correct sequence of events from an initial shock to consumption and the resulting multiplier effects

consumption declines , firms revenue falls, labor demand shifts left, unemployment rises, and the multiplier effects continue their cycle.

the federal reserve conducts open market operations when it wants to

influence the federal funds rate

contractionary monetary policy would

most likely be implemented for inflation above 2 percent

expansionary monetary policy shifts the labor demand curve to the right by?

pushing long term interest rates DOWN thereby causing greater private expenditures and inducing firms to want to hire more workers

supposed the fed conducts an open market purchase. such an action would be called for if the economy faced the possibility of recession?

recession

following the feds successful open market PURCHASE the process that ensures is given by

short term interest rates fall, demand for goods and services increases; labor demand shifts right

which series of events would stimulate the economy and shift the labor demand curve to the right ( increase demand for labor) expansionary monetary policy

the fed thru open market operations buys government bonds from -private banks, which increases the supply for reserves , which decreases the federal funds rat e, which decreases long term rates, which increases households willingness to borrow and spend , which shifts the labor demand curve to the right (increases demand for labor which increases real GDP)

example of counter cyclical monetary policy for controlling inflation

lower bank reserves and increase interest rates

which is true about the equilibrium federal funds rate

the fed can increase the equilibrium federal funds rate by decreasing the supply of reserves

Fiscal policy

Government expenditures

which of he following cannot produce a shift in the credit demand curve?

a change in the real interest rate . ( is a movement along the credit demand curve)

the federal reserve influences the long run real interest rate through

the short term federal funds rate

the fed's open market PURCHASE the federal funds market by shifting the supply of reserves?

to the right