Macro Ch 15 part 1
In November 2008, the Fed began its first round of quantitative easing. In total, the Fed conducted ________ rounds of quantitative easing before ending the program in October 2014.
3
Monetary policy refers to the actions the...
Federal reserve takes to manage the money supply and interest rates to pursue its economic objective
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
The Federal Reserve's four goals of monetary policy are...
Price stability, high employment, economic growth, and stability of financial markets and institutions
In 2015, some banks in Europe had to make interest payments to borrowers rather than receive interest payments from borrowers. Which of the following statements describes this situation?
These banks were receiving negative nominal interest rates on these loans
Which of the following will lead to a decrease in the equilibrium interest rate in the economy?
a decrease in GDP
Which of the following would cause the money demand curve to shift to the left?
a decrease in real GDP
Contractionary monetary policy on the part of the Fed results in...
a decrease in the money supply, an increase in interest rates, and a decrease in GDP
The situation in which short-term interest rates are pushed to zero, leaving the central bank unable to lower them further is known as...
a liquidity trap
An increase in the interest rate causes...
a movement up along the money demand curve
If the Fed pursues expansionary monetary policy,...
aggregate demand will rise, and the price level will rise
Suppose the Fed increases the money supply. Which of the following is true?
at the original interest rate, the quantity of money demanded is less than the quantity of money supplied
Monetary policy is conducted by the U.S. Treasury Department....
false
Since World War II, the Federal Reserve has not been involved in carrying out monetary policy....
false
The Fed can directly lower the inflation rate..
false
The Fed can simultaneously reduce the inflation rate and stimulate growth through lowering interest rates...
false
The main goal of monetary policy for recent Fed Chairmen has been to maintain high employment in labor markets....
false
For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the...
federal funds rate
The interest rate that banks charge other banks for overnight loans is the...
federal funds rate
The rate of interest banks charge other banks for overnight loans of reserves is the...
federal funds rate
When Fed Chair Janet Yellen announced that a rate increase would be warranted by the end of the year, she was was referring to 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 goals of monetary policy tend to be interrelated. For example, when the Fed pursues the goal of __________, it also can achieve the goal of ________________ simultaneously....
high employment; economic growth
Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively ________ and real GDP to be relatively ________.
higher; higher
Suppose that households became mistrustful of the banking system and decide to decrease their checking account balances and increase their holdings of currency. Using the money demand and money supply model and assuming everything else is held constant, the equilibrium interest rate should...
increase
Using the money demand and money supply model, an increase in money demand would cause the equilibrium interest rate to...
increase
Using the money demand and money supply model, an open market SALE of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to...
increase
Falling interest rates can...
increase a firm's stock price, which causes firms to issue more stock shares, and thus increases fund to investment
Lowering the interest rate will...
increase investment projects by firms
Increases in the price level...
increase the quantity of money needed for buying and selling
Implementing a negative interest rate policy, as was advocated by the president of the Federal Reserve Bank of Minneapolis, would be designed to ________ the price level and ________ real GDP.
increase; increase
A decrease in interest rates can _________ the demand for stocks as stocks become relatively _______ attractive investments as compared to bonds...
increase; more
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
An increase in the interest rate...
increases the opportunity cost of holding money
Which of the following would be most likely to induce the Federal Reserve to conduct expansionary monetary policy? A significant decrease in...
investment spending
The federal funds rate...
is determined by the supply of and demand for bank reserves
Monetary policy could be procyclical if the Federal Reserve...
is late recognizing that a recession has begun and conducts expansionary monetary policy
If the probability of losing your job remains _________, a recession would be a good time to purchase a home because the Fed usually _________ interest rates during this time...
low; lowers
The money demand curve has a negative slope because...
lower interest rates cause households and firms to switch from financial assets to money
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
Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism in which the Fed can affect the economy through monetary policy? Increasing the money supply...
lowers the interest rate and firms increase investment spending
When calculating GDP, the Bureau of Economic Analysis revises its quarterly data...
many times over the next several years
Rising prices erode the value of money as a ________ and as a ________.
medium of exchange; store of value
An increase in real GDP can shift...
money demanded to the right and increase the equilibrium interest rate
If the Fed buys Treasury bills, this will shift the...
money supply curves to the right
When the Federal Reserve increases the money supply, at the previous equilibrium interest rate households and firms will now have...
more money than they want to hold
The money demand curve, against possible levels of interest rates, has a ...
negative slope
The money demand curve has a ...
negative slope because an increase in the interest rate decreases the quantity of money demanded
When the Federal Reserve was established in 1913, its main policy goal was...
preventing bank panics
Federal Reserve Board Chairmen Paul Volcker, Alan Greenspan, and Ben Bernanke all have focused on which of the following as their main goal of monetary policy?
price stability
The top policy goal for Paul Volker when he became chair of the Federal Reserve's Board of Governors in 1979 was ...
price stability
Which of the following are goals of monetary policy?
price stability, economic growth, and high employment
If the Federal Reserve raises or lowers interest rates too late, it could result in a ________ policy that destabilizes the economy.
procyclical
With the federal funds rate near zero and the economy still struggling, the Fed began buying 10-year Treasury notes and certain mortgage-backed securities to keep interest rates low. This policy is known as...
quantitative easing
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 rate
If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run.
reduce; lower
The Fed seeks to promote stability of financial markets because...
resources are lost when there is not an efficient matching of savers and borrowers
When the Federal Reserve decreases the money supply, at the previous equilibrium interest rate households and firms will now want to...
sell treasury bills
Suppose the Fed decreases the money supply. In response households and firms will ________ short term assets and this will drive ________ interest rates.
sell; up
The Fed can increase the federal funds rate by...
selling treasury bills which decreases bank reserves
A decrease in real GDP can...
shift money demanded to the left and decrease the interest rate
The money market model is concerned with ________ and the loanable funds market model is concerned with ________.
short-term nominal interest rates; long-term real interest rates
When the Fed increased the volume of discount loans after the terrorist attacks of September 11, 2001, it was trying to achieve...
stability of the financial markets
The Federal Reserve can affect directly its monetary policy ________, which then affect its monetary policy ________.
targets; goals
A monetary policy target is a variable that
the fed can affect directly
The economy suffered a mild recession in 2001. Despite the recession, home sales and durable goods sales remained high. Which of the following is a plausible explanation?
the fed causes a reduction in the federal funds rate to its lowest level in 40 years
Which of the following correctly describes what the Fed used as monetary targets in the past?
the fed increased its reliance on interest rate targets since the mid- 1990s
Which of the following characterizes the Fed's ability to prevent recessions?
the fed is able to keep a recession shorter and milder than it would otherwise be
The money supply curve is vertical if...
the fed is bale to completely determine the money supply
If the Fed raises its target for the federal fund rate, this indicates that...
the fed is pursuing a contractionary monetary policy
If the Fed lowers its target for the federal funds rate, this indicates that...
the fed is pursuing an expansionary monetary policy
The monetary policy target the Federal Reserve focuses primarily on today is ...
the interest rate
The federal funds rate is...
the interest rate banks charge each other for overnight loans
An increase in the price level causes...
the money demand curve to shift to the right
Which of the following is true?
the money market model is essentially a model of that determines the short term nominal rate of interest
The Federal Reserve's two main monetary policy targets are...
the money supply and interest rates
Monetary policy refers to the actions the Federal Reserve takes to manage...
the money supply and interest rates to pursue its economic objective
The Fed's two main monetary policy targets are...
the money supply and the interest rate
When the Fed uses contractionary policy,
the price level rises less than it would if the fed did not pursue policy
A monetary policy target is a variable that the Fed can affect directly, which then affects one or more of the Fed's policy goals...
true
Buying a house during a recession may be a good idea if your job seems secure because the Federal Reserve often lowers interest rates during a recession...
true
Ceteris paribus, an increase in the money supply will lower shortminus−term interest rates....
true
Inflation rates during the years 1979minus−1981 were the highest the United States has ever experienced during peacetime....
true
Maintaining a strong dollar in international currency markets is not one of the four monetary policy goals of the Fed listed in the textbook....
true
One of the monetary policy goals of the Federal Reserve is price stability.
true
Rising nominal GDP will increase the demand for money and shortminus−term interest rates...
true
Which of the following describes what the Fed would do to pursue an expansionary monetary policy?
use open market operations to buy treasury bills
When the Fed embarked on a policy known as quantitative easing, they...
bought longer-term securities than are usually bought in open market operations
Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve...
cannot realistically fine tune the economy, but seeks to keep recessions shorter and milder than they would otherwise be.
If money demand is extremely sensitive to changes in the interest rate, the money demand curve becomes almost horizontal. If the Fed expands the money supply under these circumstances, then the interest rate will ...
change very little and investment and consumer spending will change very little
Changes in the federal funds rate usually result in...
changes in both short-term and long-term interest rates with more of an effect on short-term interest rates
Using the money demand and money supply model, an open market PURCHASE of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to...
decrease
An increase in the domestic interest rate relative to other interest rates should..
decrease consumption spending
From an initial longminus−run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than longminus−run aggregate supply, then the Federal Reserve would most likely...
decrease interest rates
An increase in interest rates...
decrease investment spending on machinery, equipment, factories, consumption spending on durable goods, and net exports.
An increase in the money supply will...
decrease the interest rate
An increase in the demand for Treasury bills will...
decrease the interest rate on treasury bills
Implementing a negative interest rate policy, as was advocated by the president of the Federal Reserve Bank of Minneapolis, would be an example of ________ monetary policy designed to ________ aggregate demand.
expansionary; increase
When the price of a financial asset ________ its interest rate will ________.
falls; rise