Module 38: Practice HW/Quiz
Look at graphs on practice hw
Terms in this set (24)
The Federal funds rate is:
the interest rate a bank pays to borrow reserves from another bank.
Once the Federal Reserve sets a target for the Federal funds rate, the actual Federal funds rate is adjusted to reach this target through:
open-market operations conducted by the Federal Reserve.
If the federal funds rate rises above the target federal funds rate, the Fed will:
buy Treasury bills.
If the actual Federal funds rate were below the target rate, the Federal Reserve would:
sell Treasury bills on the open market.
If the Fed sells Treasury bills on the open market, then:
short-term interest rates will rise
Which statement describes the correct sequence of monetary policy?
The Federal Reserve changes the money supply in order to change interest rates, so as to affect the level of aggregate demand.
Which policy action of the Federal Reserve would be appropriate for correcting a recessionary gap?
buying Treasury bills on the open market
If an increase in the rate of money supply growth causes a decline in interest rates:
then both investment spending and consumption spending will rise.
In which circumstance would the Fed be most likely to pursue a contractionary monetary policy?
when it believes that current real GDP is above the level of potential real GDP
The Fed lowering its target for the federal funds rate is an indicator of which of the following?
expansionary monetary policy
If the Fed expands the money supply
interest rates will fall, investment spending will rise, and GDP will rise
Which action would the Fed carry out if it was pursuing contractionary monetary policy?
sell treasury bills
Which statement is true?
The Fed tries to keep inflation low but positive.
The Fed will tend to raise the interest rate if:
the economy is experiencing an inflationary gap.
Which statement is TRUE?
Monetary policy is the main tool of stabilization policy
According to the Taylor Rule for monetary policy, which of the following should be taken into account when setting the target for the federal funds rate?
both the size of the output gap and the size of the inflation rate
The Taylor rule says that the target federal funds rate should ______ when there is a positive output gap and ______ when there is low and negative inflation.
One of the advantages of inflation targeting is that it:
ensures central bank accountability.
A decrease in the supply of money with no change in demand for money will lead to a(n) _______ in the equilibrium quantity of money and a_______ in the equilibrium interest rate.
If the Federal Reserve wants to lower interest rates, it can:
increase the money supply by buying Treasury bills.
What is currently used by the Federal Reserve as a determinant of monetary policy?
a loosely defined Taylor rule
Monetary policy affects GDP and the price level by changing:
An increase in the money supply which will decrease interest rates causes a shift the:
aggregate demand curve to the right
Monetary policy that increases the demand for goods and services is known as _____ monetary policy.
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