M&B exam 3 quiz questions

equilibrium in the money market would be expressed by which of the following

Ms = Md

Modern monetary policymakers work to reduce the volatility created by fluctuations in __________ by adjusting __________.

aggregate demand and aggregate supply; target interest rate

the Taylor rule is

an approximation that seeks to explain how the FOMC sets their target

raising interest rates following the use of unconventional policy tools depends on

both the size and composition of the central bank's balance sheet and the toolbox available to the central bank

while GDP was once a key cyclical indicator, its usefulness has declined substantially for all of the following reasons EXCEPT which one

contains too much information

history shows that

countries with high rates of money growth have high rates of inflation

the key to the success of forward guidance as a monetary policy tool is

credibility

The economy is in both a short- and long-run equilibrium if

current inflation equals expected inflation and current output equals potential output

All other factors equal, as nominal interest rates increase, checking account balances should

decrease

as a person's wealth increases, we would expect the demand for money to

increase but at a rate than dollar for dollar

use the following formula for the Taylor rule: target federal funds rate = natural rate of interest + current inflation + ½(inflation gap) +½(output gap) to determine the change in the target federal funds rate for every one percent increase in the rate of inflation. This will

increase the target federal funds rate by 1.5% and increase the real federal funds rate by 0.5%

For central bankers to alter the real interest rate by changing the nominal interest rate,

inflation expectations should be quite stable

the primary monetary policy tool most used by central banks today is

interest rates

a major contributing factor to the instability of money demand over the past 25 years is the

introduction of financial instruments that pay higher returns than money but can be used as a means of payment

which one of the following statements is most correct

it is impossible to have high, sustained inflation without monetary accommodation

If the level of current output suddenly falls below the potential level of output, central bankers would typically

lower the real interest rate

in studying the average annual inflation and money growth in 160 countries over the three decades that began in 1980, it is startling to see that researchers found many countries that had experienced rates of inflation that averages

more than 200% a year

if the market federal funds rate were below the target, the response from the Fed would likely be to

raise the IOER rate

In the long run, with %ΔV = 0, we can conclude that the inflation rate equals the

rate of money growth minus growth in potential output

the only solution available to a country experiencing extremly high rates of inflation is to

reduce money growth

One of the ways inflation reduces aggregate demand is by

reducing real balances

The self-correcting mechanism to return the economy to potential output from output gaps is the change in

short-run aggregate supply

Potential output of the country when viewed over long periods of time

tends to rise over time

What would be the impact on the monetary policy reaction curve if the Fed were to raise the target inflation rate?

the monetary policy reaction curve shifts to the right

In the short run, the point on the aggregate demand curve where an economy will end up in equilibrium depends on

the short-run aggregate supply curve

one way the Fed can inject reserves into the banking system is to increase

the size of the Fed's balance sheet through purchasing securities

To use money growth as a short-term monetary policy instrument, a central bank must believe that

there is a stable link between the monetary base and the rate of inflation

a good monetary policy instrument is

tightly linked to monetary policy objectives

Federal funds loans are

unsecured loans

key assumptions behind the quantity theory of money include that the

velocity of money is constant