Exam 33: Transmission and Amplification Mechanisms

An increase in the money supply can typically affect the economy with a lag of

Why did the housing boom of 1997-2006 show evidence of time bunching? I. As banks began to increase their portfolio of mortgage loans, more and more banks began to offer fast mortgage loans in hopes of making more profit. II. As builders saw the increase in home building, they also jumped on the bandwagon and started building new homes in hopes of making greater profits. III. As consumers saw other consumers purchasing houses in anticipation of rising prices, they also purchased new homes in hopes of increasing their wealth.

The Federal Reserve has complete control of the money supply.

When it is difficult to know the size and timing of monetary policy effects, the central bank should use policy discretion to deal with shocks.

Monetary authorities in a country face the following situation. Consumers are not spending, investment is low, and unemployment is relatively high. Explain how monetary policy could work to improve this situation.

At the time the Federal Reserve must make a decision, the actual state of the economy may be unknown.

Suppose the central bank targets a low rate of unemployment. If a negative real shock occurs, the real growth rate will be

One of the Fed's greatest powers is its ability to

If a central bank wishes to reduce inflation, it should announce its intentions and follow through with them, thereby using _________ monetary policy.

The first signs of trouble in the subprime mortgage market came in August of

Monetary authorities in a country say that there have been no recent negative supply shocks. The economy in this country is currently experiencing high inflation and its productive capacity cannot be increased much. Explain how monetary policy could work to fix this business fluctuation in the best case scenario.

When a central bank reacts the same way to a shock every time, it is likely using

U.S. real GDP growth first became negative in

Increased uncertainty causes the AD curve to

In a worst case scenario the Federal Reserve is least successful at counteracting a negative

Milton Friedman was chair of the Fed in 1980 and quickly brought inflation rates down.

How did the housing boom of 1997-2006 increase aggregate demand?

Part of the Fed's job is convincing people of its credibility.

Uncertainty always causes

It is easier for a central bank to stabilize both inflation and real growth following an aggregate demand shock than following a real shock.