exam ch 35

A decrease in money supply growth will cause the:

AD curve to shift to the left

If the Federal Reserve wishes to avoid short-run increases in the unemployment rate, the correct response to a negative AD shock would be:

an increase in money supply growth

An open-market purchase of government bonds by the Fed results in ________ in bank reserves and ________ in the supply of money.

an increase; an increase

A potential problem with expansionary monetary policy is that banks can

be unwilling to lend.

What is the difference between disinflation and deflation?

Disinflation is a slower increase in prices, whereas deflation is a decrease in prices

Deflation is

a decrease in prices; that is, a negative inflation rate.

If the public's demand for holding cash increases, the growth rate of money velocity will:

decrease

Which of the following represents an action by the Federal Reserve that is designed to increase the money supply?

decrease in the discount rate

Economists who believe the Fed is likely to make lots of mistakes in the implementation of monetary policy believe:

in monetary policy rules

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising

inflation.

Uncertainty drives people away from

investment spending and toward more liquid assets.

Which of the following sequence of events follows an increase in the money supply?

↓ interest rate → ↑ investment spending → ↑ aggregate demand → ↑ real GDP

Monetary policy is used to stabilize the economy by changing factors that shift the

AD curve

If the Federal Reserve offsets a negative shock to aggregate demand with increased money growth:

both inflation and real GDP growth will rise

If the Fed wanted to reduce the market interest rate, it could

decrease the required reserve ratio

Assume that total deposits in the banking system are $200 million. If the the required reserve ratio is increased, then the money supply will:

decrease.

In the short run, a negative AD shock will cause the inflation rate to:

decrease.

A significant decrease in the rate of inflation is called:

disinflation.

One of the Federal Reserve's most powerful tools is its influence over _____, not its influence over _____.

expectations; the money supply

When people believe that a central bank will stick with its policy, monetary policy is likely to have

high credibility.

Which of the following is not a tool available to the Fed to change the supply of money?

printing new and shredding worn out currency

Increased uncertainty will cause the economy's AD curve to:

shift inward.

If uncertainty causes people to increase their demand for cash at the same time that the Fed raises money supply growth, then the Fed's action will:

shift the AD curve less to the right

The discount rate is

the interest rate that the Fed charges commercial banks for funds borrowed from the Fed

Which of the following "real world" problems is most difficult for the Fed's use of monetary policy?

the time that it takes for the economy to adjust to changes after a new policy is introduced.