Homework Chapter 15
The interest rate that banks charge other banks for overnight loans is the
Federal funds rate.
Expansionary monetary policy refers to the ________ to increase real GDP.
Federal Reserve's increasing the money supply and decreasing interest rates
The Federal Reserve's four goals of monetary policy are
Price stability, high employment, economic growth, and stability of financial markets and institutions.
Which of the following is true?
The money market model is essentially a model of that determines the short-term nominal rate of interest.
Monetary policy refers to the actions the Federal Reserve takes to manage
The money supply and interest rates to pursue its economic objectives.
The Federal Reserve's two main monetary policy targets are
The money supply and interest rates.
If the Fed buys Treasury bills, this will shift the
money supply curve to the right.
The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect
real interest rates.
If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run.
reduce; lower
The Fed can increase the federal funds rate by
selling Treasury bills, which decreases bank reserves.
If the Fed pursues expansionary monetary policy then
the money supply will increase, interest rates will fall and GDP will rise.
If the Fed's policy is contractionary, it will
use open market operations to sell Treasury bills.
Which of the following would cause the money demand curve to shift to the left?
A decrease in real GDP
An increase in the interest rate causes
A movement up along the money demand curve.
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives.
For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the
Federal funds rate.
The money demand curve has a
Negative slope because an increase in the interest rate decreases the quantity of money demanded.
Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?
Potential GDP is forecasted to be higher than equilibrium GDP.
In which of the following situations would the Fed conduct contractionary monetary policy?
The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP.
The monetary policy target the Federal Reserve focuses primarily on today is
The interest rate.
Contractionary monetary policy causes
aggregate demand to fall and the price level to fall.
If the Fed pursues expansionary monetary policy,
aggregate demand will rise, and the price level will rise.
An increase in the money supply will
decrease the interest rate.
Increases in the price level
increase the quantity of money needed for buying and selling.
An increase in the interest rate should ____________ the demand for dollars and the value of the dollar, and net exports should __________.
increase; decrease
An increase in real GDP
increases the buying and selling of goods and increases the demand for money as a medium of exchange.
Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often
lowers interest rates during recessions.