MT4 Homework

which of the following are policy instruments available to the Fed as it tries to achieve its macroeconomic goals?

changes in the federal funds rate

The above table gives assets and deposits for a (small) bank. The deposits that are part of M2 are equal to

checking deposits, savings deposits, time deposits

When housing prices fall, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements ________ as many households found it ________ to borrow against the value of their homes.

declined; harder

"As the Fed Chases Inflation, Critics Shout, 'Faster!'" "For weeks, the Fed has broadcast its intention to raise interest rates glacially." The Fed was moving slowly, according to an economist because "...the declining price of oil, economic fundamentals, including productivity and global competition, will keep inflation in check." The Fed, recognizing that the economy was improving stated it planned to "respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability." Other economists disagree with the Fed's restrained policy as a "mistake." www.nytimes, 7/1/2004 By increasing the federal funds target, the Fed will ________ reserves and ________ the quantity of money.

decrease; decrease

between the second quarter of 2006 and the first quarter of 2009, the value of housing wealth

decreased by about $600 billion per quarter

Monetary policy decisions are made by the

Federal Open Market Committee

"The Bank of Israel lowered its benchmark lending rate by half a percentage point, the fourth cut in seven weeks, as the global financial turmoil slows economic growth and inflation expectations ease." www.bloomberg.com 11/24/2008 The Bank of Israel's actions ________ bank reserves and have the goal of ________ consumption.

increase, increasing

Goals of monetary policy

price stability, economic growth, and high employment

In November 2008, the Reserve Bank of India (RBI) lowered its "repo" rate, the rate at which it lends to banks, from 8 percent to 7.5 percent. Only two weeks earlier, it had lowered the rate from 9 percent to 8 percent. The Economist, 11/6/2008 The Reserve Bank of India is lowering its rates to fight

recession

transfer payments include

social security benefits, medicare & Medicaid, unemployment benefits

Automatic changes in tax revenues and expenditures that occur as a result of fluctuations in real GDP are referred to as automatic

stabilizers

what two parts of the government determine the federal budget?

the Congress & the President

if the fed buys US government securities,

the federal funds rate will fall

the federal funds rate is __________ of the Fed

the monetary policy instrument

Monetary policy refers to the actions the Federal Reserve takes to manage

the money supply & interest rates to pursue its economic objectives

the nominal interest rate cannot fall below

zero

a financial asset is considered a security if

it can be sold in a secondary market.

the phenomenon in which an insured individual takes less care in preventing the event against which she is insured is an example of

moral hazard

In 2008, the Treasury and Federal Reserve took several actions in response to the deepening financial crisis. One action was that the Fed announced it would loan up to $200 billion of Treasury securities in exchange for

mortgage-backed securities

if aggregate demand changes while aggregate supply is stable, output & the unemployment rate are

negatively related

When the government's outlays equal its tax revenue, the budget

is balanced and the national debt is not changing

Which statement about money is most correct?

Money has been around for a long time and can include anything that is accepted as a means of payment

The Taylor rule is an example of

an instrument rule focused on the federal funds rate

A country reports that its inflation rate and unemployment rate have both increased. These changes could be the result of

an upward shift of the short-run Phillips curve

which of the following activities is one of the responsibilities of the Federal Reserve?

assisting banks that are in a difficult financial position

When housing prices ________, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements decline as many households find it ________ to borrow against the value of their homes.

fall; harder

The Phillips curve depicts the relationship between

inflation & unemployment