Final

____ flexible wages and prices imply that the short-run aggregate curve is ______.

More; steeper

Activist of the policies believe that

Need Answer

Assuming that rr = 10%, c = 40%, and e = 0, an increase in rr to 15% causes M1 money multiplier to ______, everything else held constant.

Need Answer

The effect of an open markets purchase on reserves differs depending on how the seller of the bonds keeps the proceeds. If the proceeds are kept in currency, the open market purchase ______ reserves; if the proceeds are kept as deposits, the open market purchase ______ reserves.

Need Answer

The time it takes for policy makers to change policy instruments once they have decided on the new policy

Need Answer

Suppose the economy is producing at the natural rate of output. A decrease in consumer and business confidence will cause _______ in real GDP in the long run and ______ inflation in the long run, everything else held constant.

Need answer

_____ are the most important monetary policy tool because they are the primary determinant of changes in the ______, the main source of fluctuations in the money supply

Open market operations; monetary base

Which of the following is most likely to leas to inflationary monetary policy?

Rising government budget deficits

Which of the following functions is not performed by an of the twelve regional Federal Reserve Banks?

Setting interest rates payable on time deposits

The price of a barrel of oil doubled between 2007 and the middle of 2008. To make matters worse, a financial crisis hit the U.S economy starting in August of 2007. Which of the following is an appropriate description of mechanism that would have ensued?

Shifts in both the AD and the AS curve would have ensued in the short-run but as long as neither shocks had an impact on potential output, ultimately unemployment will have been unaffected in the long run.

Each Federal Reserve bank has nine directors. Of these _____ are appointed by the member banks and ______ are appointed by the Board of Governors

Six; three

Which of the following is an entity of the Federal Reserve System?

The FOMC

The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced that

a central bank was needed to prevent future panics

By analyzing aggregate demand through its component parts, we can conclude that, everything else held constant, a decline in the inflation rate causes

a declined in real interest rates, an increase in investment spending, and an increase aggregate output demand

Demand-pull inflation can result when

a persistent budget deficit is financed by selling bonds to the central bank.

After 2003, The Federal reserve usually keeps the discount rate

above the target federal funds rate.

Everything else held constant, when the federal fund rate is ______ the interest paid on reserves, the quantity of reserves demanded rises when the federal funds rate ______.

above, falls

When the economy suffers a temporary negative supply shock and the monetary policy makers try to stabilize economic activity in the short run, then

all of the above -aggregate demand curve shifts rightward - inflation rate will be higher - output rate will be higher

Evidence for the time period 1960-1980 indicates that inflation in the United States results from

an employment target that was set too high

Suppose the economy is producing below the natural rate of output and the government is suffering from large budget deficits. To deal with the deficit problem, suppose the government takes a policy action to reduce the size of the deficits. This policy action will cause _____ in the unemployment rate in the short run and ______ in inflation in the short run, everything else held constant.

an increase; a decrease

Suppose the U.S economy is producing at the natural rate of output. A depreciation of the U.S dollar will cause ______ in real GDP in the short run and __________ in inflation in the short run, everything else held constant. (Assume the depreciation causes no effects in the supply side of the economy)

an increase; an increase

Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Fed will cause _______ in real GDP the short run and ______ in inflation in the short run, everything else held constant.

an increase; an increase

The strongest argument for an independent Federal Reserve rests on the view that subjecting the Fed to more political pressures would impart

an inflationary bias on monetary policy

The three players in the money supply process include

banks, depositors, and the central bank

The research document given to the Federal Open Market Committee that contains information on the state of the economy in each Federal Reserve district is called the

beige cook

everything else held constant, when output is _______ the natural rate level, wages will being to _______, increasing short-run aggregate supply.

below; fall

Discount policy affects then money supply by affecting the volume of ______ and the _______.

borrowed reserves; monetary base

when the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy, then

both A and B -inflation will be higher - output will be at its potential

When the economy is hit by a negative demand shock and the central bank pursues policies to increase aggregate demand to its initial level, then

both B and D - output will be at its potential - inflation will be unchanged

When the economy is hit by a temporary negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy, then

both B and D - output will be at its potential -inflation will be unchanged

In the Governing Council, the decision of what policy implement is made by

consensus

If workers believe that government policymakers will increase aggregate demand to avoid a politically unpopular increase in unemployment when workers demand higher wages, then workers will not fear higher unemployment and their wage demands will result in

cost-push inflation

The monetary base consists of

currency in circulation and reserves

Decisions by depositors to increase their holdings of _____, or of banks to hold excess reserves will result in a ______ expansion of deposits than then simple model predicts.

currency; smaller

When good weather speeds the check-clearing process, float tend to ______ cause the Fed to initiate _____ open market _______.

decrease; defensive; purchases

The Federal Reserve will engage in a matched sale-purchase transaction when it wants to ______ reserves ______ in the banking system.

decrease; temporarily

When the Federal Reserve calls in a discount loan from a bank, the monetary base _____ and reserves ______.

decreases; decrease

everything else held constant, a decrease in net exports _____ aggregate ______.

decreases; demand

When the Federal Reserve engages in a repurchase agreement to offset a withdrawal of Treasury funds from the Federal Reserve, the open market operation is said to be

defensive

If Treasury deposits are predicted to increase, the manager of the trading desk at the New York Fed bank will likely conduct ______ open market operations to ________ reserves.

defensive; inject

Suppose on any given day there is an excess demand of reserves in the federal funds market. If the Federal Reserve wishes to keep the federal funds rate at its current level, then the appropriate action for the Federal Reserve is a ______ open market _____, everything else held constant.

defensive; purchase

The Federal Reserve ______ pay interest on reserves held on deposit. The European System of Central ____ pay interest on reserves held on deposit.

does; does

The Depository Institutions Deregulation and Monetary Control Act of 1980

established uniform reserve requirements for all banks

In the period 1965 through the 1970s, policymakers pursued _____ policies in order to achieve _____

expansionary; high employment

A decrease in ______ leads to an equal ______ in the monetary base in the short run.

float; decrease

An assumption in the model of the money supply is that the desired levels of currency and excess reserves

grow proportionally with checkable deposits

Everything else constant budget increase government spending (that is, an increase in government spending that is matched by an identical increase in net taxes) will

increase aggregate demand, but not by as much as if just government spending increases.

Everything else held constant, an autonomous monetary policy _________ aggregate _______ demand

increase; demand

In the market for reserves, if the federal funds rate is between the discount rate and the interest paid on excess reserves, an increase in the reserve requirement ____ the demand for reserves, _______ the federal funds rate, everything else held constant

increases, raising

Everything else held constant, when financial frictions increase, the real cost of borrowing _______ so that planned investment spending _______ at any given inflation rate.

increases: falls

If the Fed injects reserves into the banking system and they are held as excess reserves, then the monetary base _____ and the money supply ______.

increases; remains unchanged

In the market for reserves, if the federal funds rate is above the interest rate paid on excess reserves, an open market purchase ______ the ______ reserves which causes the federal funds rate to fall, everything else held constant.

increases; supply

The ability of a central bank to set monetary policy instruments is

instrument independence

The theory of bureaucratic behavior suggest that the objective of a bureaucracy is to maximize

its own welfare

While legislation enacted in 1998 granted the Bank of Japan new powers and greater autonomy, its critics contend that its independence is

limited by the Ministry of Finance's veto power over a portion of its budget

Everything else held constant, in the market for reserves, when the federal funds rate is 5%, lowering the discount rate from 5% to 4%

lowers the fed funds rate

From before the financial crisis began in Sep. of 2007 to when the crisis was over at the end of 2009, the huge expansion in the Fed's balance sheet and the monetary base did not result in a large increase in monetary supply because

most of it just flowed into holdings of excess reserve.

The long-run rate of unemployment to which an economy always gravitates is the

natural rate of unemployment

The amount borrowed reserves is ______ related to the discount rate, and is ______ related to the market interest rate.

negatively; positively

Suppose from a new checkable deposit, First National Banks holds two million dollars in vault cash, eight million dollars on deposits with the Federal Reserve, and one million dollars in required reserves. Given this information, we can say First National Bak has ______ million dollars ion excess reserves

nine

Suppose the U.S economy is operating at potential output. A negative supply shock that is accommodated by an open market purchase by the Federal Reserve will cause ______ in real GDP long run and _______ in the long run, everything else held constant.

no change, an increase

Suppose the economy is producing at the natural rate of output. Assuming a fixed natural rate of output and everything else held constant, the development of a new, more productive technology will cause _____ in the unemployment rate in the long run and ______ in inflation in the short run.

no change; a decrease

The existence of lags prevents the instantaneous adjustment of the economy to policies changing aggregate demand, thereby strengthening the case for

nonactivists

Each governor on the Board of Governors can serve

one full nonrenewable fourteen-year term plus part of another term.

Members of Congress are able to influence monetary policy, albeit indirectly, through their ability to

propose legislation that would force the Fed to submit requests to Congress, as must other government agencies

In the simple deposit expansion model, an expansion in the checkable deposits of $1,000 when the required reserve ratio is equal to 20 percent implies that the Fed

purchased $200 in government bonds

If the Fed expects currency holdings to rise, it conducts open market ______ to offset the expected _______ in reserves

purchases; decrease

The Federal are _____ institutions since they are owned by the _______.

quasi-public; private commercial banks in the district when the Reserve is located

Because shifts in aggregate demand are not viewed as being particularly important to aggregate output fluctuations, they do not see much need for activist policy to eliminate high unemployment. "They" refers to proponents of

real business cycle theory

Although neither _____ nor the ______ are officially set by Federal Open Market Committee, decisions concerning these policy tools are effectively made by the committee

reserve requirements; discount rate

High-powered money minus currency in circulation equals

reserves

Suppose, at a given federal finds rate, there is an excess supply of reserves in the federal finds market. If the Fed want the federal funds rate to stay level, then it should undertake an open market ______ of bonds, everything else held constant. If the Fed does nothing, however, the federal finds rate will ______.

sale; decrease

The Federal Open Market Committee consists of the

seven members of the Board of Governors and five presidents of regional Fed banks

The disruption to financial markets starting in August 2007 that caused both consumer and business spending to fall

shifted the aggregate demand curve to the left

A negative supply shock cause _____ to _______.

short-run aggregate supply; decrease

Everything else held constant, when actual output exceeds the natural rate of output _______ aggregate supply ________.

short-run; decreases

Everything else held constant, aggregate demand increases when

taxes are cut

Regarding central bank independence

the European Central Bank is more independent than the Fed

When the federal funds rate equals rate paid on excess reserves

the demand curve for reserves is horizontal

Everything else held constant, the vertical section of the supply curve of reserves is shortened when

the discount rate decreases

Prior to 1980, member banks left the Federal Reserve System due to

the high cost of required reserves

The time it takes to pass legislation to implement a particular policy called

the legislative lag

The data lag is

the time it takes for policy makers to obtain data indicating what is happening in the economy

The effectiveness lag is

the time it takes for the policy actually to have an impact on the economy

A bank has excess reserves of $6,000 and demand deposit liabilities of $100,000 when the required reserve ratio is equal to 20 percent. If the reserve ration is raised to 25 percent, the bank's excess reserves will be

$1,000

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, the bank can now increase its loans by

$100

In the simple deposit expansion model, if the Fed purchases $100 worth of bonds from a bank that previously had no excess reserves, deposits in the banking system can potentially increase by

$100 time the reciprocal of the required reserve ratio

If the required reserve ratio is 10%, currency circulation is $400 billion, checkable deposits are $1000 billion, then the money supply is ______ billion

$1400

If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has total reserves of

$36,000

The long-run aggregate supply curve shifts to the right when there is

(A,B,C) - an increase in the total amount of capital in the economy - an increase in the available technology -a decrease in the natural rate of unemployment...

The interest rate for primary credit is usually set ____ basis points _______ the federal funds rate. In March 2008, the gap changed to ______ basis points.

100; above; 25

If the required reserve ratio is one-third, currency circulation is $300 billion, checkable deposits are $900 billion and there is no excess reserve, then the M! money multiplier is

2.0

The interest rate on secondary credit is set _____ basis points _______ the primary credit rate.

50, above

The nonactivists who opposed the recent fiscal stimulus package argue

All of the above -fiscal stimulus could lead to increased volatility in inflation and economic activity - fiscal stimulus might kick in after the economy had already recovered - fiscal stimulus would take too long to work because of long implementation lags

When the economy suffers a temporary negative supply shock and the central bank responds by changing the autonomous component of monetary policy to keep inflation at the target inflation rate, then

Both A and B - aggregate output drops in the short run -output will return to potential output over time

when the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy to keep inflation at the target inflation rate, then

Both A and C - aggregate demand curve shifts leftward - output will be at its potential

The Federal Market Committee usually meets______ times a year.

Eight

Under the European System of Central Banks, the Governing Council is similar in structure to the _______ of the Federal Reserve System

Federal Open Market Committee

The equation that shows the amount of the monetary base needed to support existing levels of checkable deposits, excess reserves and currency is

MB = (rrA D) + ER + C

The economist who proposed that, "Inflation is always and everywhere a monetary phenomenon" was

Milton Freidman