Exam 29: Monetary Policy: Conventional and Unconventional

The Fed's founders viewed the Fed as a means of maintaining the money supply during economic contractions and as a lender of last resort.

Investment spending is lower when interest rates are higher.

The Fed is unlike other central banks in that it

Higher interest rates lead to lower investment spending.

Risky borrowers pay higher interest rates than safer borrowers, in order to persuade lenders to accept the higher risk of default.

If the Fed buys more bonds from the public, and increases the price it is willing to pay for the bonds, what will happen to interest rates?

The Federal Open Market Committee consists of

Quantitative easing refers to open-market purchases of assets other than Treasury bills.

The reserve demand schedule is drawn on a graph that has the quantity of reserves on the horizontal axis and

Are money and income the same thing?

Income is measured as

The Fed has which of the following as its strongest control over the money supply?

When the Fed sells a government security to the public, how does it usually receive payment for the security?

Explain the linkages in the causal chain when the Fed conducts a contractionary monetary policy. What will be the ultimate effect on GDP?

The quantity of reserves supplied increases as interest rates rise because

An open-market purchase of Treasury bills by the Fed not only raises the money supply but also

The Fed relies on open-market operations, which work

In practice, money supply and short-term interest rates are determined by the

Monetary policy is the system of actions taken by the Fed to influence the money supply.

Unconventional monetary policies include massive lending to banks and open-market purchases of assets other than Treasury bills.