Econ Ch15
Which of the following events caused Congress to begin seriously looking at setting up the Federal Reserve system
Some severe banking crises at the end of the 19th century and early 20th century
How did the FOMC react to the recession of 2007-2009
The FOMC reduced the target for the fed funds rate steadily in 2008
The indirect effect of an increase in the money supply works through
a decrease in the interest rate increasing investment and consumption
Which of the following is not one of the monetary policy goals of the Federal Reserve ("the Fed")
a high foreign exchange rate of the US dollar relative to other currencies
Monetarism is a school of economic thought that favors
a monetary growth rule
With an expansionary monetary policy, investment, consumption, and net exports all ________, which results in the aggregate demand curve shifting to the ________, increasing real GDP and the price level.
increase; right
When the central bank commits to conducting policy in a manner that achieves the goal of holding inflation to a publicly announced level, it is using
inflation targeting
If the Fed is too slow to react to a recession and applies an expansionary monetary policy only after the economy begins to recover, then A countercyclical policy is one that
inflation will be higher than if the Fed had not acted. is used to attempt to stabilize the economy
Contractionary monetary policy causes the
interest rate to increase
As interest rates decline, stocks become a __________ attractive investment relative to bonds, and this causes the demand for stocks and their prices to __________
more, rise
One of the primary goals of the Federal Reserve is __________
price level stability
Which one of these is a part of the Federal Reserve's mandate
price stability
If the FOMC orders the trading desk to sell Treasury securities
the money supply curve will shift to the left and the equilibrium interest rates will rise
One of the goals of the Federal Reserve is price stability. For the Fed to achieve this goal
the rate of inflation should be low, such as 1% to 3%, and should be fairly consistent
Which of these variables are the main monetary policy targets of the Fed
the money supply and the interest rate
Which of the following is a monetary policy response to the economic recession of 2007dash-2009 and the accompanying financial crisis?
-The Fed expanded the eligibility for discount loans to firms other than commercial banks. -The Fed provided loans directly to corporations by purchasing commercial paper. -The Fed purchased large amounts of mortgage-backed securities
The decline in housing prices that began in 2006 led to rising defaults among which borrowers
-borrowers who had made only small down payments -borrowers with adjustable-rate mortgages -alt-A and subprime borrowers
The (FOMC) Federal Open Market Committee
-includes the Board of Governors and the presidents of the 12 Federal Reserve regional banks (though not all are voting members). -determines the target federal funds rate and the direction of open market operation policies. -makes decisions that are voted on by all 7 members of the Board of Governors but only 5 of the 12 regional bank presidents
The United States is divided into ___ Federal Reserve Districts
12
The Federal Reserve System was established in_____ after a series of______
1913 banking crises
One of the board members is appointed to a __ year, renewable term as the chairman.
4
The Federal Reserve Bank's Board of Governors consists of ___members appointed by the president of the U.S. to 14-year, non-renewable terms.
7
Which of the following is a function of the Federal Reserve System
Acting as a lender of last resort to commercial banks
Monetary policy designed to curb inflation by slowing economic activity is known as________ monetary policy
Contractionary
Which of these will shift the money demand curve to the right
An increase in real GDP
Which of these statements best describes the scenario shown in these graphs
An open market purchase leads to an increase in the money supply which causes interest rates to fall and investment spending to rise
What group of 7 individuals is always part of the Federal Open Market Committee
Board of Governors
Which of the following is a true statement
Both the direct and the indirect effects of an expansionary monetary policy are to increase aggregate demand
What is inflation targeting
Committing the central bank to achieve an announced level of inflation
Which of these factors were primary cause of the recession of 2007-2009
Falling housing prices
During 2005, the FOMC was concerned that the inflation rate would begin to accelerate due to the continued boom in the housing market, so the Fed started decreasing the target for the federal funds rate
False
For the Fed to succeed in reducing the severity of business cycles, it must act precisely when a recession or an acceleration of inflation can be seen in the economic data
False
If the Fed decides to carry out an expansionary monetary policy because it believes aggregate demand will not increase enough to keep the economy at potential GDP, the inflation rate will most likely be lower than it would have been without the policy.
False
From what group are the remaining 4 seats filled
Federal Reserve Districts
As of 1993, the Fed sets targets for which of the following in order to achieve price stability and high employment?
Federal funds rate
The Fed buys and sells bonds as a part of its policy to reach all of the following objectives except
High unemployment
Which of these is not one of the four main goals of monetary policy
Home ownership
The Taylor rule for federal funds rate targeting does which of these things
It links the Fed's target for the federal funds rate to economic variables
The Taylor rule for federal funds rate targeting does which of the following According to the Taylor Rule, if the Fed reduces its target for the inflation rate, the result will be
It links the Fed's target for the federal funds rate to economic variables a higher target federal funds rate
Which of the following is NOT a monetary policy goal of the Federal Reserve bank (the Fed)?
Low prices
Which Federal Reserve District is always represented on the FOMC
New York
To affect economic variables such as real GDP or the price level, the monetary policy target the Federal Reserve has generally focused on is the
federal funds rate
Monetary policy is defined as
The actions the Federal Reserve takes to manage the money supply and interest rates
Which of the following statements is true about the Fed's monetary policy targets
The fed is forced to choose between the interest rate and the money market supply as its monetary policy target
Which of the following is not true regarding the multiple goals of the Fed
The goal of financial market stability means that the Fed tries to ensure that asset prices, such as stock prices, increase at a very high rate so investors can make more money
Which of these graphs depicts the impact of a decrease in the aggregate price level
The graph on the right
Which of the following is not a viable monetary policy target for the Fed
The money demand
What is the basic structure of the Federal Reserve Bank
There are 12 district banks, a Board of Governors and a Federal Open Market Committee
Why would the Fed intentionally use contractionary monetary policy to reduce real GDP
To reduce real GDP in order to reduce inflation, which occurs if real GDP is above potential GDP
Two government-sponsored enterprises that stand between investors and banks that grant mortgages are the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
True
When is the opportunity cost of holding money higher
When interest rates are high
If the Federal Reserve wishes to decrease the money supply to slow the economy, it will conduct
an open market sale
The federal funds rate is the rate
at which banks lend to each other
If the Federal Open Market Committee (FOMC) decides to increase the money supply, it orders the trading desk at the Federal Reserve Bank of New York to If the FOMC orders the trading desk to sell Treasury securities,
buy U.S. Treasury securities the money supply curve will shift to the left, and the equilibrium interest rate will rise.
If the FOMC decides to increase the money supply, it orders the trading desk at the Federal Reserve Bank of New York to
buy U.S. Treasury securities.
When the Federal Open Market Committee (FOMC) decides to increase the money supply, it____U.S. Treasury securities. If the FOMC wishes to decrease the money supply, it ____ U.S. Treasury securities
buys sells
If the Fed decreases the money supply and increases interest rates in order to reduce inflation, it is engaging in __________
contractionary monetary policy
Because of the __________ in forecasting the economy, many economists believe the Fed __________ take a very active role in trying to stabilize the economy
difficulties, should not
The Fed's strategy of increasing the money supply and lowering interest rates in order to increase real GDP is called Why would the Fed intentionally use contractionary monetary policy to reduce real GDP
expansionary monetary policy The Fed intends to reduce inflation, which occurs if real GDP is greater than potential GDP
The net export effect of contractionary monetary policy predicts that a country's
exports decrease as the money supply contracts
The interest rate that banks charge each other for overnight loans is called the Which of the following statements is correct?
federal funds rate -Changes in the federal funds rate usually will result in changes in both short-term and long-term interest rates on financial assets. -The effect of a change in the federal funds rate on long-term interest rates is usually smaller than it is on short-term interest rates. -A majority of economists support the Fed's choice of the interest rate as its monetary policy target, but some economists believe the Fed should concentrate on the money supply instead
The interest rate that banks charge each other for overnight loans is called the As interest rates decline, stocks become a __________ attractive investment relative to bonds, which causes the demand for stocks and their prices to __________.
federal funds rate more; rise
All of these will most likely increase as a result of expansionary monetary policy except
government purchases
The Federal Reserve Bank of New York is always a voting member of the FOMC because
it carries out the policy directives of the FOMC
One of the criticisms of the Fed's active intervention to stabilize the economy is that
it is difficult to time monetary policy because of the impact lags
If the economy moves into a recession, monetarists argue that the Fed should
keep the money supply growing at a constant rate
If the economy moves into recession, monetarists argue that the Fed should
keep the money supply growing at a constant rate
When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________
low, high
When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is _________, so the quantity of money demanded will be _________
low; high
Suppose that when the Fed decreases the money supply, households and firms initially hold less money than they want to, relative to other financial assets. As a result, households and firms will _________ Treasury bills and other financial assets, thereby _________ their prices, and _________ their interest rates
sell; decreasing; increasing
When the Fed conducts monetary policy, the most relevant interest rate is the
short-term nominal interest rate
If real GDP increases, If the price level decreases,
the money demand curve shifts to the right. the money demand curve shifts to the left.
Which of these two variables are the main monetary policy targets of the Fed
the money supply and the interest rate
U.S. monetary policy decisions are made by
the Federal Open Market Committee
Which of the following events was an important cause of the 2007dash-2009 recession
the collapse of a housing bubble
If real GDP increases
the money demand curve shifts to the right
If the price level increases, __________
the money demand curve shifts to the right
When the interest rate decreases, _
there is movement down a stationary money demand curve
