Macro Final Chapter 15

What does a decrease in money supply increase and decrease? (2)

increases the interest rate and decreases aggregate demand

The purpose of an expansionary monetary policy is to shift the aggregate demand curve

leftward

Which of the following actions by the Fed would cause the money supply to increase?

optimistic forward guidance

If the Fed sells government securities in the open market, the Fed gives the securities to the buyer, and

puts their money payments into the Fed vault

The Fed's response to the zero lower bound problem was

quantitative easing.

Open-market operations refer to

the purchases and sales of U.S. government securities by the Fed.

If the Fed buys government securities in the open market,

the securities go into the Fed's vault, and the Fed creates new money to pay for them.

What is the cause-effect chain of a restrictive monetary policy?

A decrease in the money supply will raise the interest rate, decrease investment spending, decrease aggregate demand, and decrease inflation.

What could happen if the Fed imposing negative nominal interest rates in response to a financial crisis and recession?

Bank customers would withdraw all their money from their accounts, banks would have less money to lend, and economic activity would fall.

The discount rate is the rate of interest at which

Federal Reserve Banks lend to banks

The conduct of monetary policy in the United States is the main responsibility of the

Federal Reserve System

True or False: The Federal Reserve does not set the federal funds rate, but prior to the 2007-2009 financial crisis, influenced it using open-market operations.

True

The goal of the Federal Reserve when buying and selling government securities in open-market operations is to

affect economic activity.

The money market comprises short-term lending markets that include markets for

bank certificates of deposit

Recalling the dual mandate bullseye chart, if an economy is in the northeast quadrant, the Fed should definitely

be mindful of the too high inflation at the same time as too high unemployment.

Recalling the dual mandate bullseye chart, if an economy is in the northwest quadrant, the Fed should definitely

conduct restrictive monetary policy.

Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to _________, which will _________ investment spending.

decrease; increase

The interest rate that banks charge one another for overnight loans of currency held on reserve at one of the 12 Federal Reserve Banks is the

federal funds rate

The interest rate that banks charge one another on overnight loans of currency held on deposit at the Fed is called the

federal funds rate.

Interest paid on reserve balances held at the Fed will

incentivize banks to hold more reserves and reduce riskier lending.

The Federal Reserve can increase aggregate demand by

reducing the three administered interest rates

If the Fed wants to discourage bank lending, it will increase

the interest paid on reserve balances held at the Fed.

The sale of government securities by the Fed will cause

the money supply to decrease.