Which of the following is NOT a monetary policy goal of the Federal Reserve bank (the Fed)? - correct answer Low prices
When the Federal Open Market Committee (FOMC) decides to increase the money supply, it ___ U.S. Treasury securities. If the FOMC ...
Which of the following is NOT a monetary policy goal of the Federal Reserve bank (the Fed)? - correct
answer Low prices
When the Federal Open Market Committee (FOMC) decides to increase the money supply, it ___ U.S.
Treasury securities. If the FOMC wishes to decrease the money supply, it ___ U.S. Treasury securities. -
correct answer buys; sells
As the figure to the right indicates, the Fed can affect both the money supply and interest rates.
However, in recent years, the Fed targets interest rates in monetary policy more often than it does the
money supply. Which interest rate does the Fed target? - correct answer The
federal funds rate
The federal funds rate - correct answer is the rate that banks charge each
other for short-term loans of excess reserves.
In the figure to the right, when the money supply increased from MS 1MS1 , the equilibrium interest
rate fell from 4% to 3%. Why? - correct answer All of the above.
Increased demand for Treasury securities drives up their prices.
Increased demand for Treasury securities drives down their interest rate.
Initially, firms hold more money than they want relative to other financial assets.
The ___ is considered the most relevant interest rate when conducting monetary policy. - correct
answer short-term nominal interest rate
, In the figure to the right, the opportunity cost of holding money _______ when moving from Point A to
Point B on the money demand curve. - correct answer decreases
In the figure to the right, which of the following events is most likely to cause a shift in the money
demand (MD) curve from MD1 to MD2 (Point A to Point C)? - correct answer
Increase in real GDP or increase in the price level
The Fed uses monetary policy to offset the effects of a recession (high unemployment and falling prices
when actual real GDP falls short of potential GDP) and the effects of a rapid expansion (high prices and
wages).
Can the Fed, therefore, eliminate recessions? - correct answer The Fed can
only soften the magnitude of recessions, not eliminate them.
Changes in interest rates affect aggregate demand. Which of the following is affected by changes in
interest rates and, as a result, impacts aggregate demand? (Mark all that apply.) - correct answer
The value of the dollar
Consumption of durable goods
Business investment projects
Consider the figures below and determine which is the best description of what causes the shift from
AD1 to AD2. - correct answer Both A and B
Example A (Point A is higher than point B) shows a contractionary monetary policy. The price level and
real GDP both fall.
Example B (Point A is lower than point B) shows an expansionary monetary policy. The price level and
real GDP both rise.
Suppose the economy is in equilibrium in the first period at point A. In the second period, the economy
reaches point B. What policy would the Fed likely pursue in order to move AD2 to AD2, policy and reach
equilibrium (point C) in the second period? (What policy will increase the price level and increase actual
real GDP?) - correct answer Open market purchase of government securities
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