Econ Ch15

When is the opportunity cost of holding money higher

When interest rates are high

When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is __________ , so the quantity of money demanded will be __________

low, high

If the FOMC decides to increase the money supply, it orders the trading desk at the Federal Reserve Bank of New York to

buy U.S. Treasury securities.

If the FOMC orders the trading desk to sell Treasury securities

the money supply curve will shift to the left and the equilibrium interest rates will rise

If the Federal Reserve wishes to decrease the money supply to slow the economy, it will conduct

an open market sale

When the interest rate decreases, _

there is movement down a stationary money demand curve

Which of these statements best describes the scenario shown in these graphs

An open market purchase leads to an increase in the money supply which causes interest rates to fall and investment spending to rise

One of the criticisms of the Fed's active intervention to stabilize the economy is that

it is difficult to time monetary policy because of the impact lags

The federal funds rate is the rate

at which banks lend to each other

If real GDP increases

the money demand curve shifts to the right

How did the FOMC react to the recession of 2007-2009

The FOMC reduced the target for the fed funds rate steadily in 2008

Which of these is not one of the four main goals of monetary policy

Home ownership

As interest rates decline, stocks become a __________ attractive investment relative to bonds, and this causes the demand for stocks and their prices to __________

more, rise

If the Fed decreases the money supply and increases interest rates in order to reduce inflation, it is engaging in __________

contractionary monetary policy

If the price level increases, __________

the money demand curve shifts to the right

All of these will most likely increase as a result of expansionary monetary policy except

government purchases

If the economy moves into a recession, monetarists argue that the Fed should

keep the money supply growing at a constant rate

Which of these factors were primary cause of the recession of 2007-2009

Falling housing prices

Monetarism is a school of economic thought that favors

a monetary growth rule

Which of these graphs depicts the impact of a decrease in the aggregate price level

The graph on the right

Which of these will shift the money demand curve to the right

An increase in real GDP

The Taylor rule for federal funds rate targeting does which of these things

It links the Fed's target for the federal funds rate to economic variables

Why would the Fed intentionally use contractionary monetary policy to reduce real GDP

To reduce real GDP in order to reduce inflation, which occurs if real GDP is above potential GDP

Because of the __________ in forecasting the economy, many economists believe the Fed __________ take a very active role in trying to stabilize the economy

difficulties, should not

One of the primary goals of the Federal Reserve is __________

price level stability

Monetary policy designed to curb inflation by slowing economic activity is known as________ monetary policy

Contractionary

U.S. monetary policy decisions are made? by

the Federal Open Market Committee

Which one of these is a part of the Federal Reserve's mandate

price stability

The Federal Reserve System was established in_____ after a series
of______

1913
banking crises

What group of 7 individuals is always part of the Federal Open Market Committee

Board of Governors

Which Federal Reserve District is always represented on the FOMC

New York

From what group are the remaining 4 seats filled

Federal Reserve Districts

Monetary policy is defined? as

The actions the Federal Reserve takes to manage the money supply and interest rates

Which of the following is a function of the Federal Reserve? System

Acting as a lender of last resort to commercial banks

The United States is divided into ___ Federal Reserve Districts

12

The Federal Reserve? Bank's Board of Governors consists of ___members appointed by the president of the U.S. to? 14-year, ? non-renewable terms.

7

One of the board members is appointed to a __ ?year, renewable term as the chairman.

4

What is the basic structure of the Federal Reserve? Bank

There are 12 district? banks, a Board of Governors and a Federal Open Market Committee

Which of the following events caused Congress to begin seriously looking at setting up the Federal Reserve? system

Some severe banking crises at the end of the 19th century and early 20th century

The? (FOMC) Federal Open Market Committee

-includes the Board of Governors and the presidents of the 12 Federal Reserve regional banks? (though not all are voting? members).
-determines the target federal funds rate and the direction of open market operation policies.
-makes decisions that are vo

The Federal Reserve Bank of New York is always a voting member of the FOMC because

it carries out the policy directives of the FOMC

Which of the following is not a viable monetary policy target for the? Fed

The money demand

The Fed buys and sells bonds as a part of its policy to reach all of the following objectives? except

High unemployment

One of the goals of the Federal Reserve is price stability. For the Fed to achieve this? goal

the rate of inflation should be? low, such as? 1% to? 3%, and should be fairly consistent

Which of the following is not true regarding the multiple goals of the? Fed

The goal of financial market stability means that the Fed tries to ensure that asset? prices, such as stock? prices, increase at a very high rate so investors can make more money

As of? 1993, the Fed sets targets for which of the following in order to achieve price stability and high? employment?

Federal funds rate

What is inflation? targeting

Committing the central bank to achieve an announced level of inflation

Which of the following is a true? statement

Both the direct and the indirect effects of an expansionary monetary policy are to increase aggregate demand

The indirect effect of an increase in the money supply works through

a decrease in the interest rate increasing investment and consumption

Contractionary monetary policy causes the

interest rate to increase

The net export effect of contractionary monetary policy predicts that a? country's

exports decrease as the money supply contracts

Which of the following is NOT a
monetary policy goal of the Federal Reserve bank? (the Fed)?

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

buys
sells

Which of these two variables are the main monetary policy targets of the Fed

the money supply and the interest rate

When interest rates on Treasury bills and other financial assets are? low, the opportunity cost of holding money is? _________, so the quantity of money demanded will be? _________

low; high

If real GDP? increases,
If the price level? decreases,

the money demand curve shifts to the right.
the money demand curve shifts to the left.

If the Federal Open Market Committee? (FOMC) decides to increase the money? supply, it orders the trading desk at the Federal Reserve Bank of New York to
If the FOMC orders the trading desk to sell Treasury? securities,

buy U.S. Treasury securities
the money supply curve will shift to the? left, and the equilibrium interest rate will rise.

Suppose that when the Fed decreases the money? supply, households and firms initially hold less money than they want? to, relative to other financial assets. As a? result, households and firms will? _________ Treasury bills and other financial? assets, th

sell; decreasing; increasing

When the Fed conducts monetary? policy, the most relevant interest rate is the

short-term nominal interest rate

To affect economic variables such as real GDP or the price? level, the monetary policy target the Federal Reserve has generally focused on is the

federal funds rate

The interest rate that banks charge each other for overnight loans is called the
Which of the following statements is? correct?

federal funds rate
-Changes in the federal funds rate usually will result in changes in both? short-term and? long-term interest rates on financial assets.
-The effect of a change in the federal funds rate on? long-term interest rates is usually smaller t

The interest rate that banks charge each other for overnight loans is called the
As interest rates? decline, stocks become a? __________ attractive investment relative to? bonds, which causes the demand for stocks and their prices to? __________.

federal funds rate
more; rise

The? Fed's strategy of increasing the money supply and lowering interest rates in order to increase real GDP is called
Why would the Fed intentionally use contractionary monetary policy to reduce real? GDP

expansionary monetary policy
The Fed intends to reduce? inflation, which occurs if real GDP is greater than potential GDP

If the Fed is too slow to react to a recession and applies an expansionary monetary policy only after the economy begins to? recover, then
A countercyclical policy is one that

inflation will be higher than if the Fed had not acted.
is used to attempt to stabilize the economy

For the Fed to succeed in reducing the severity of business? cycles, it must act precisely when a recession or an acceleration of inflation can be seen in the economic data

False

With an expansionary monetary? policy, investment,? consumption, and net exports all? ________, which results in the aggregate demand curve shifting to the? ________, increasing real GDP and the price level.

increase; right

If the Fed decides to carry out an expansionary monetary policy because it believes aggregate demand will not increase enough to keep the economy at potential? GDP, the inflation rate will most likely be lower than it would have been without the policy.

False

During? 2005, the FOMC was concerned that the inflation rate would begin to accelerate due to the continued boom in the housing? market, so the Fed started decreasing the target for the federal funds rate

False

If the economy moves into? recession, monetarists argue that the Fed should

keep the money supply growing at a constant rate

Which of the following statements is true about the? Fed's monetary policy? targets

The fed is forced to choose between the interest rate and the money market supply as its monetary policy target

The Taylor rule for federal funds rate targeting does which of the? following
According to the Taylor? Rule, if the Fed reduces its target for the inflation? rate, the result will be

It links the? Fed's target for the federal funds rate to economic variables
a higher target federal funds rate

When the central bank commits to conducting policy in a manner that achieves the goal of holding inflation to a publicly announced? level, it is using

inflation targeting

Which of the following events was an important cause of the 2007dash-2009 ?recession

the collapse of a housing bubble

Two ?government-sponsored enterprises that stand between investors and banks that grant mortgages are the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.

True

The decline in housing prices that began in 2006 led to rising defaults among which? borrowers

-borrowers who had made only small down payments
-borrowers with? adjustable-rate mortgages
-alt-A and subprime borrowers

Which of the following is a monetary policy response to the economic recession of 2007dash-2009 and the accompanying financial? crisis?

-The Fed expanded the eligibility for discount loans to firms other than commercial banks.
-The Fed provided loans directly to corporations by purchasing commercial paper.
-The Fed purchased large amounts of? mortgage-backed securities

Which of the following is not one of the monetary policy goals of the Federal Reserve? ("the Fed")

a high foreign exchange rate of the US dollar relative to other currencies

Which of these variables are the main monetary policy targets of the? Fed

the money supply and the interest rate