Macro Quiz 2
If the required reserve ratio is 25 percent, the money multiplier is
4
During the 1970s, the Fed often reacted to negative oil shocks by increasing the money supplyand focusing on
During the 1970s, the Fed often reacted to negative oil shocks by increasing the money supplyand focusing on
What would be the likely outcome if the Federal Reserve decided to lower the required reserveration
The money multiplier would increase and M1 would expand
Which of the following shocks can the Fed deal with most effectively
a shock to aggregate demand
In the short run, if the Federal Reserve responds to a negative real shock with an increase inmoney supply growth, the inflation rate will increase because of
both the real shock and the increased money supply growth.
The monetary base (MB) refers to
currency plus total reserves at the Fed.
M2 includes:
currency, checkable deposits, savings deposits, money market mutual funds, and small-timedeposits
If businesses react to a pessimistic outlook and decrease spending, the Fed can counteract this by
increasing money supply, which may lower real interest rates and encourage borrowing
Sometimes economists and analysts worry about the Federal Reserve over-stimulating the economy because such overstimulation will lead to
rising inflation
The Federal Reserve can influence the economy by shifting
the AD curve
The Fed's job in manipulating monetary policy is made harder by the fact that
the Fed has to operate in real time and information on recessions usually becomes availablewith a lag