Macro Chapter 15 (Hubbard)

In the figure to the​ right, when the money supply increased from MS1 to MS2​, the equilibrium interest rate fell from​ 4% to​ 3%. Why? (Homework#5)

A. Increased demand for Treasury securities drives up their prices. B. Increased demand for Treasury securities drives down their interest rate. C. ​Initially, firms hold more money than they want relative to other financial assets. D. ALL OF THE ABOVE

The figure to the right illustrates the economy using the Dynamic Aggregate Demand and Aggregate Supply Model. If actual real GDP in 2006 occurs at point B and potential GDP occurs at LRAS06​, we would expect the Federal Reserve Bank to pursue a contractionary monetary policy. If the​ Fed's policy is​ successful, what is the effect of the policy on the following macroeconomic​ indicators? (homework #14)

Actual real GDP decreases. Potential real GDP does not change. Price level decreases. Unemployment increases.

Consider the figures below and determine which is the best description of what causes the shift from AD1 to AD2. (homework #11)

Example A shows a contractionary monetary policy. The price level and real GDP both fall. Example B shows an expansionary monetary policy. The price level and real GDP both rise.

The figure to the right illustrates a dynamic AD-AS model Suppose the economy is in equilibrium in the first period at point A. In the second​ period, the economy reaches point B. We would expect the Fed to pursue what type of policy in order to move AD2 to AD2, policy and reach equilibrium​ (point C) in the second​ period? If the Federal Reserve​ Bank's policy is​ successful, what is the effect on the following macroeconomic​ indicators?

Expansionary monetary policy Actual real​ GDP: increases Potential real​ GDP: does not change Price​ level: increases ​Unemployment: decreases

In the figure to the​ right, which of the following events is most likely to cause a shift in the money demand​ (MD) curve from MD1 to MD2 ​(Point A to Point ​C)​? (homework #8)

Increase in real GDP or increase in the price level

Which of the following is NOT a monetary policy goal of the Federal Reserve bank​ (the Fed)?

Low prices

Suppose the economy is in equilibrium in the first period at point A. In the second​ period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD2 to AD2, policy and reach equilibrium​ (point C) in the second​ period? ​ (What policy will increase the price level and increase actual real​ GDP?)

Open market purchase of government securities

The figure to the right illustrates a dynamic AD-AS model. Suppose the economy is in equilibrium in the first period at point A. In the second​ period, the economy reaches point B. What policy would the Fed likely pursue in order to move AD2 to AD2, policy and reach equilibrium​ (point C) in the second​ period? (homework #16)

Open market purchase of government securities.

If the Federal Reserve is late to recognize a recession and implements an expansionary policy too​ late, the result could be an increase in inflation during the beginning of the next phase. Even though the goal had been to reduce the severity of the​ recession, the poor timing caused another​ problem: inflation. This is an example of what type of​ policy?

Procyclical policy

The Fed uses monetary policy to offset the effects of a recession​ (high unemployment and falling prices when actual real GDP falls short of potential​ GDP) and the effects of a rapid expansion​ (high prices and​ wages). Can the​ Fed, therefore, eliminate​ recessions?

The Fed can only soften the magnitude of​ recessions, not eliminate them.

As the figure to the right​ indicates, the Fed can affect both the money supply and interest rates.​ However, in recent​ years, the Fed targets interest rates in monetary policy more often than it does the

The federal funds rate

Changes in interest rates affect aggregate demand. Which of the following is affected by changes in interest rates​ and, as a​ result, impacts aggregate​ demand? ​(Mark all that​ apply.)

The value of the dollar, Consumption of durable goods, Business investment projects

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

n the figure to the​ right, the opportunity cost of holding money decreases when moving from Point A to Point B on the money demand curve. (homework 7)

decreases

The federal funds rate

is the rate that banks charge each other for​ short-term loans of excess reserves.

The ? is considered the most relevant interest rate when conducting monetary policy.

short-term nominal interest rate