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Side ASide B
Monetary policy refers to the actions the
Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.
The Federal Reserve System's four monetary policy goals are
price stability, high employment, economic growth, stability of financial markets and institutions
When the Federal Reserve System was established in 1913, its main policy goal was
preventing bank panics
The top policy goal for Paul Volcker when he became chairman of the Federal Reserve's Board of Governors in 1979 was
During the turmoil in the market for subprime mortgages in 2007 and 2009, the Fed increased the volume of discount loans. The goal of the Fed was to
reassure financial markets and promote financial stability
To decrease the money supple, the Federal Reserve could
conduct an open market sale of Treasure securities
The Federal Open Market Committee consists of the seven members of the _______, the president of the Federal Reserve Bank of New York, and _________.
Federal Reserves Board of Governors; four presidents from the other 11 Federal Reserve Banks
The three main monetary policy tools used by the Federal Reserve to manage the money supply are
open market operations, discount policy, and reserve requirements
The main tool that the Federal Reserve uses to conduct monetary policy is
open market operations
The purchase of Treasury securities by the Federal Reserve will, in general,
increase the quantity of reserves held by banks
The sale of Treasury securities by the Federal Reserve will, in general,
decrease the quantity of reserves held by banks
As a result of Kristy's deposit, Bank A's required reserves increase by
As a result of Kristy's deposit, Bank A's excess reserves increase by
As a result of Kristy's deposit, Bank A's can make a maximum loan of
As a result of Kristy's deposit, checking account deposits in the banking system as a whole could eventually increase up to a maximum of
The required reserves of a bank equal its _______ the required reserve ratio.
deposits multiplied by
The major assets on a bank's balance sheet are its
reserves, loans, and holdings of securities
The M1 measure of the money supply equals
currency plus checking account balances plus traveler's checks
Economies where goods and services are traded directly for other goods and services are called ______ economics
The major shortcoming of a barter economy is
the requirement of a double coincidence of wants
has value indepent of its use as money
Silver is an example of a
Which of the points in the above graph are possible short-run equilibria but not long-run equilibria?
B and D
Suppose the economy is at point A. If investment spending increases in the economy, where will the eventual long-run equilibrium be?
Suppose the economy is at point C. If government spending decreases in the economy in the economy, where will the eventual long-run equilibrium be?
Suppose the economy is at point A. If the economy experiences a supply shock, where will the eventual short-run equilibrium be?
An increase in aggregate demand results in a(n)_________ in the ________.
expansion; short run
Suppose there has been an increase in investment. As a result, real GDP will ________ in the short run, and ________ in the long run.
increase; decrease to its initial value
A decrease in investment causes the price level to_______ in the short run and __________ in the long run.
decrease; decrease further
An increase in aggregate demand causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run.
real GDP; the price level
Most recessions in the United States since World War II have begun with
a decline in residential construction
When the aggregate demand curve and the short-run aggregate supply curve intersect,
the economy is in short-run macroeconomics equilibrium
Interest rates in the economy have fallen. How will this affect aggregate demand and equilibrium in the short run?
Aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise.
The Federal Reserve's two main _______ are the money supply and interest rate.
monetary policy targets
The money demand curve has a
negative slope because an increase in the interest rate decreases the quantity of money demanded
An increase in the price level causes
the money demand curve to shift to the right
Using the money deman and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to
When the Federal Reserve decreases the money supply, at the previous equilibrium interest rate housesholds and firms will now want to
sell Treasury bills
Figure 14.2 When the money supply shifts from MS1 to MS2, at the interest rate of 3 percent households and firms will
sell Treasury bills
14.3 When the money supply shifts from MS1 to MS2, at the interest rate of 3 percent housholds and firms will
buy Treasury bills
For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the
federal funds rate
Which of the following would cause the money demand curve to shift to the left?
a decrease in real GDP
An increase in the interest rate
increases the opportunity cost of holding money.
The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect
real interest rates
From an initial long-run macroeconomics equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply,...
decrease interest rates
Figure 14.4 If the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to
lower interest rates
Figure 14.5 Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD-AS model in the figure above, this would be depicted as movement...
A to B
Figure 14.5 Suppose the Fed lowers its target for the federal funds rate. Using the static AD-AS model in the figure above, this situation would be depicted as movement from
A to B
Figure 14.6 In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most
decrease interest rates
Figure 14.6 In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve puruses no...
the economy is below full employment