Exam 3: The Fed and Interest Rates

The Federal Reserve System established

Ordinarily the money supply will decrease if:

Increasing interest rates increase wealth and encourage spending.

If the Fed was instead targeting interest rates and money demand dropped the Fed would likely increase the money supply.

The Federal Open Market Committee (FOMC) is the major monetary policy making body of the U.S. Federal Reserve System.

There is definitely a tradeoff between stable prices and full employment.

Monetarists and Keynesians agree that

The Fed exclusively controls the money supply.

Velocity of money

Influence of monetary policy on the real sector is

A prolonged "tight" monetary policy can be associated with falling bond prices.

An increase in excess reserves will cause

Explain how the Fed adjusts its balance sheet to increase or decrease the monetary base.

Restrictive monetary policy in the United States may slow down net exports and GNP.

When a bank orders currency from the Fed, the monetary base does not change.

If cash drains increase, the Fed may offset their effects with open market sales.

What exactly is the Fed Funds Rate, and why isn't it considered a "tool of monetary policy?

In 2010 and 2011, Federal Reserve announced quantitative easing's, or QEs, which is to create money for buying long-term U.S. Treasury bonds in the market. What is the impact of the QE on security prices? How does the Fed expect the QEs to influence the economy?

Which of the following was a responsibility of the early Federal Reserve System?

Consumption spending should increase if