Chapter 14

If inflation does not adjust rapidly in the short run, then when the federal reserve decreases the nominal interest rate, the real interest rate in the short run will:

Decrease

During the Christmas shopping season, the demand for money increases significantly. If the Fed takes no actions to offset the increase in money demand, then nominal interest rates will ____.

increase

The amount of wealth and individual chooses to hold in the form of money is called:

The demand for money

If the federal reserve set a target nominal interest rate, it can:

Only set a money supply target that is consistent with the nominal interest rate target

three macro economic factors that affect the demand for money are:

The nominal interest rate, real income, and the price level

A policy reaction function describes how the action a policy maker takes depends on:

The state of the economy

Since the Fed faces uncertainty regarding effects of its policies, the Fed usually proceeds:

cautiously with only small changes in the interest-rate.

developments in the United States, such as credit cards, debit cards, ATMs, and online banking have:

decrease the demand for money

Higher nominal interest rates ______ the amount of money demanded and higher real income ______ the amount of money demanded.

decrease, increases

according to the Taylor rule, the federal reserve raises the interest rate as the output gap______ or the inflation rate ______.

decreases: increases

In the short run, if the fed increases interest rates, then consumption and investment _______, planned aggregate expenditure _________ and the short run equilibrium output ________

decreases; decreases; decreases

The____is the interest rate commercial banks pay to the Fed; the____is the interest rate commercial banks charge each other for short term loans

discount rate; federal funds rate

One problem with using monetary policy to address "bubbles" in asset markets is that:

doing so presupposes that the federal reserve is better than financial market professionals at identifying bubbles

If the nominal interest rate is below the equilibrium value, then the quantity demanded of money is____than the quantity supplied of money, bond prices will____, and the nominal interest rate will____

greater; fall; increase

the benefit of holding money ________, while the opportunity cost of holding money is ________.

it's usefulness in carrying out transactions; the nominal interest rate

The decision about the forms in which to hold one's wealth is called the____decision.

portfolio allocation

in reality, the feds information is fairly and precise in regards to:

potential GDP

The money demand curve will shift to the right if:

real income increases

If the feds policy reaction function equals r=.02+pi. Where r is the real interest rate and pi is the inflation rate. When the inflation rate is zero, then the real interest rate will be:

set to equal 2%

Because a decrease in the nominal interest rate reduces the opportunity cost of holding money, the money demand curve:

slopes downward