Macro

in the short run, when the price level in india increased india's agg supply

didnt change, but the quantity of real gdp supplied increased

interest rate at which the fed stands ready to lend reserves to depository institutions is the

discount rate

discretionary monetary policy is not a strategy adopted by the fed because discretionary monetary policy

doe snot proved a secure anchor for inflation expectations and financial and labor markets are most efficient when people can make long term commitments

costs of inflation

does not include an increase of savings and investment

in the long run with a constant velocity of circulation, the inflation rate

equals the money growth rate minus the growth rate of real gdp

the opportunity cost of holding money

equals the nominal interest rate on bonds

does inflation targeting achieve lower inflation rates

eurozone and new zealand have missed and others have succeeded

Fed conducts an open market purchase of securities. nominal interest in the short run ____. and in the long run ___

falls falls

The larger the effect of a change in the interest rate on aggregate expenditure, the

greater is the multiplier effect and the smaller is the change in the interest rate that achieves the Fed's objective

growth rate of nominal gdp

growth rate of real gdp +inflation rate

as more people in india have access to higher education

human capital increases and in the long run both potential and agg supply increase

fed conducts open market purchase of securities

in the short run, nominal interest rates fall. in the long run the value of money falls

when indian univ. increased the number of engineering grads f

india's agg supply increased

velocity of circulation

inflation rate+ real gdp growth-money growth

when us firms move IT and data functions to india

inidia's agg supply increased

growth rate of money

inlfation rate + real gdp - velocity growth

If the Fed increases the interest rate, then

investment and consumption expenditure decrease, the dollar rises, and net exports decrease.

the opportunity cost of holding money

is the interest rate forgone on an alternate investment

stagflation

is the rise in price level and decrease in real gdp

when mexico decreases the quantity of money

mexico's agg demand decreases and its ad curve shifts leftward

Equation of Exchange

money growth + velocity growth-real gpd growth

the 3 alternative monetary policy strategies that the Fed could have adopted are

money targeting rule nominal gpd targeting rule inflation targeting rule

After real GDP increases, at an interest rate of 3% a year, people want to hold __ money so they __ bonds. The price of a bond __ and the interst rate __

more sell falls rises

after the decrease in the quant. of money, at an interest rate of 5% a year, people want to hold __ $ so they__ bonds. The price of a bond __ and interest rates __

more sell falls rises

when the us price level rises

movement along the ad curve occurs and the quant of us real gdp demanded decreases

in the long run, the us price level ___ and real gdp___ if the fed takes monetary policy actions that are consistent with its objectives as set out in the FED Reserve Act of 2000

moves toward its original level moves toward potential gDP

if the quantity theory of money is correct an increase in the quant. of money increases

nominal gdp and the price level

real interest rate

nominal interest rate - inflation rate

calculate real interest rate

nominal interest rate minus inflation rate

calculating inflation rate

nominal interest rate minus real interest rate

calculating real interest rate

nominal interest-inflation rate

inflation targeting central banks use the ___ as policy instrument

overnight interest rate

at an interest rate of 5% a year

people want to hold more money so they sell bonds

To fight inflation, the Fed might conduct an open market

sale of securities which would decrease aggregate demand

To achieve its objectives, the Fed uses three main policy tools which include all of the following except

setting the fed funds rate

An open market purchase of securities will

shift the money supply curve rightward and decrease interest rate.

Ben has $1,000 in his savings account and the bank pays an interest rate of 5 percent a year. The inflation rate is 3 percent a year. The government taxes the interest that Ben earns on his deposit at 20 percent. Calculate the after-tax nominal interest rate

Ben's interest income $50. The government takes $10 of interest in tax, so the interest income Ben earns after tax is $40. The after-tax nominal interest rate is ($40 ÷ $1,000) × 100, which equals 4 percent a year.

GDP Equation

Consumption goods + investments+government spending +net exports

dumping argument

In international trade, the export by a country or company of a product at a price that is lower in the foreign market than the price charged in the domestic market. usually involves substantial export volumes of the product, it often has the effect of endangering the financial viability of manufacturers or producers of the product in the importing nation.

Ben has $1,000 in his savings account and the bank pays an interest rate of 5 percent a year. The inflation rate is 3 percent a year. The government taxes the interest that Ben earns on his deposit at 20 percent. Calculate the after-tax real interest rate that Ben earns.

The after-tax real interest rate equals the after-tax nominal interest rate minus the inflation rate. So the after-tax real interest rate equals 4 percent a year minus the inflation rate of 3 percent a year, which is 1 percent a year.

infant industry argument

The supposition that emerging domestic industries need protection against international competition until they become mature and stable. new and in its early stages of development, and not yet capable of competing against established industry competitors.

feds choice of monetary policy strategy is

adjusting the fed fund rate to best fulfill its dual mandate

Which of the following would be a typical Federal Reserve action intended to slow an economy growing at an unsustainably high rate

an increase in a key interest rate target.

national security argument

argument is often made that an industry should be protected for national security, an argument that is often used by the industry itself because it doesn't want to compete with foreigners.

feds liabilities include

bank deposits

When there is an increase in currency held outside the banking system,

bank reserves decrease, currency increases, and the monetary base remains the same.

holding money provides a benefit

because its a means of payment

If the Federal Reserve wants to make very small adjustments and do so regularly it will

use open market operations.

If the Federal Reserve wants to make relatively large adjustments and do so a few times a year it will

change an interest rate target.

the Feds operational goals include

core inflation rate between 1-2% a year and an output gap as small as possible

A goal of monetary policy is to

dampen the business cycle.

us business expect future profits to fall

decrease agg demand decreases real gdp and lowers price level

the world oil price rises by a large amount

decrease agg supply decreases real gdp and raises price level

deep recession hits world economy

decrease in agg demand decreases real gdp and lowers price level

If the Fed wants to increase the quantity of money, it can

decrease the required reserve ratio, decrease the discount rate, or buy securities in an open market operation.

when lots of people put their money into bonds, the demand for money __ the price of a bond __ and the interest rate on bonds __

decreases rises falls

velocity of circulation ____ when the growth rate of ____ was greater than the growth rate of ____

decreases the quantity of money nominal gdp

rise in the money wage rate

decreases agg supply

rise in minimum wage increases natural unemp rate,

potential gdp decreases and agg supply decreases further

in the long run, money market equilibrium determines the

price level

velocity of money

price level x real gdp /quantity of money

job preservation argument/same domestic jobs argument

primary argument that is often presented to restrict trade is that trade reduces the number of jobs available domestically. While this is true of specific industries, trade does not generally reduce jobs overall, because trade allows consumers to pay lower prices, which, in turn, allows them to buy more products and services.

inflation targeters_____

publish an inflation report that describes the current state of the economy and its explect evolution of the next two years

Quantity of Money

quantity of money (m)=Nominal GDP (Y) x price level (P)/velocity of circulation(v)

value of m*x

quantity of money x velocity of money

fed fights inflation by

raising fed funds rate, which lowers interest rates and decreases agg demand

nominal gdp

real gdp x price level

printing money

refers to the Fed increasing the quantity of money by buying gov bonds which transfers gov debt to the Fed

they also explain why

the central banks policy will achieve the inflation target

when the world economy goes into a strong expansion

the demand for us exports increases and the demand for us real gdp increases

the fed does not target the quantity of money because

the fed believes that the demand for money is too unstable

The quantity of money that people plan to hold depends on all of the following factors except

the money supply.

quantity of money demanded increases if

the nominal interest rate falls

when congress raises income tax

the us deman for real gdp decreases and the ad curve shifts leftward

if the fed increases the quantity of money, people holding money will be holding

too much money so they buy bonds and the interest rate falls