Econ Final- Chapter Questions and Current Events

The equilibrium interest rate in the money market is determined -by how much the interest rate fluctuates over time - the Fed. -at the intersection of the total demand for money curve and the supply of money curve -at the intersection of the aggregate demand and aggregate supply curves.

at the intersection of the total demand for money curve and the supply of money curve

What is the impact of each of the following transactions on commercial bank reserves? The New York Federal Reserve Bank purchases government securities from private businesses and consumers and the businesses and consumers hold the proceeds as cash. Commercial reserves will

be unnaffected

When economists say that monetary policy can exhibit cyclical asymmetry this means: -recession are short than inflations -expansionary and restrictive monetary policy do not have the same effectiveness in handling economic expansion and contraction -expansionary and restrictive monetary policy cannot both be used for economic expansion and contraction -the Fed is only able to deal with inflation

expansionary and restrictive monetary policy do not have the same effectiveness in handling economic expansion and contraction

The primary purpose of these lender-of-last-resort programs during the 2007 financial crisis was to -calm international markets -urge political action -stimulate political debate -help prevent total disarray in the credit market

help prevent total disarray in the credit markets

Total money demand is the -horizontal sum of the consumer demand for money and the producer demand for money. -vertical sum of the private demand for money and the public demand for money. -vertical sum of the transactions demand for money and the asset demand for money. -horizontal sum of the transactions demand for money and the asset demand for money

horizontal sum of the transactions demand for money and the asset demand for money

Cyclical asymmetry is related to a liquidity trap because -during an inflationary period adding liquidity can have little effect -in a recession adding liquidity can have little effect -monetary policy is most effective in liquidity traps -in a recession, adding liquidity can have significant effects

in a recession adding liquidity can have little effect

What is the impact of each of the following transactions on commercial bank reserves? The Fed increases the interest rate on excess reserves. Commercial reserves will

increase

What is the impact of each of the following transactions on commercial bank reserves? The Fed reduces the reserve ratio. Commercial reserves will

increase

What is the impact of each of the following transactions on commercial bank reserves? Commercial banks borrow from Federal Reserve Banks at the discount rate. Commercial reserves will

increase

A major strength of monetary policy is -its long-term consequences. -the rule that it uses to manage the economy. -the relatively short appointments of members of the Fed's Board of Governors. -its speed and flexibility

its speed and flexibility

The basic determinant of the transactions demand for money is the -reserve ratio -price level -level of nominal GDP -interest rate.

level of nominal GDP

Monetary policy is easier to conduct that fiscal policy becaus -the economy responds better to monetary policy than to fiscal policy -monetary policy is easier to understand -monetary policy has a much shorter administrative lag than fiscal policy -the Fed has more control of the economy

monetary policy has a much shorter administrative lag than fiscal policy

The possibility of a liquidity trap is significant to policy makers because -fiscal policy is more effective in fighting inflation than recession -recessions are shorter than inflations -monetary policy is more effective in fighting recession than inflation -monetary policy is more effective in fighting inflation than recession

monetary policy is more effective in fighting inflation than recession

The following are all programs and actions undertaken by the Fed in response to the financial crisis that began in 2007 except -ZIRP -QE -interest payments on reserves -negative interest rates

negative interest rates

In responding to the financial crisis that began in 2007, the Fed -purchased securities from banks to increase liquidity in the financial system -sold securities to banks to increase liquidity in the financial system -purchased securities from banks to decrease liquidity in the financial system -sold securities to banks to decrease liquidity in the financial system.

purchased securities from banks to increase liquidity in the financial system

Suppose that you are a member of the Board of Governors of the Federal Reserve System and the economy is experiencing a sharp rise in the inflation rate. In this case, the reserve ratio, the discount rate, and the interest rate paid on excess reserves should be -set at zero -lowered -raised -set to equal the federal funds rate

raised

If there is an increase in the total demand for money, -the money supply will fall -the equilibrium interest rate will rise -the money supply will rise -the equilibrium interest rate will fall

the equilibrium interest rate will rise

The basic objective of monetary policy is -to assist the economy in achieving a full-employment, noninflationary level of total output -to increase employment and stabilize exchange rates. -to eliminate inflation and lower interest rates. -to maintain steady exchange rates and lower inflation.

to assist the economy in achieving a full-employment, noninflationary level of total output