Exam 17: Monetary Policy and Inflation

Recall the Application about the Fed's policy of quantitative easing to answer the following question(s). -This Application refers to quantitative easing, a policy that occurs when the Fed

Describe the channels through which open market purchases by the Fed affects output in an open economy.

The nominal interest rate is determined in the

Recall the Application about the possible link between the value of the U.S. dollar and the worldwide increase in commodity prices to answer the following question(s). Starting in the summer of 2010, there was a rise in prices of commodities such as oil and food worldwide. Some economists suggested that monetary policy in the United States was the cause of the worldwide commodity boom. -According to this Application, some economists noticed that the change in the value of the U.S. dollar was largely due to the change in interest rates, and the change in interest rates occurred because of the Fed's use of ________ to further stimulate the economy.

A decrease in the level of real GDP in the economy leads to

An open market ________ by the Fed increases the money supply, which leads to ________ interest rates and increased GDP.

The opportunity cost of holding money is

From time to time, the Federal Reserve sells various quantities of government bonds to the private sector through a process called

If the Fed wished to decrease GDP, it could

What is the "good news" and the "bad news" about a lower value of the U.S. dollar?

A decrease in the discount rate

By raising the discount rate, the Federal Reserve ________ banks from borrowing more reserves.

Decreased investment spending in the economy would be a possible result of

If the Federal Reserve is interested in conducting contractionary policy, what types of policies should it consider?

What would be a way for the Federal Reserve to slow down the economy when it is growing too quickly or is inflationary?

If the Federal Reserve raises the discount rate, banks will be inclined to borrow additional reserves and the money supply will increase.

Based on the model of the money market, when real income decreases, the equilibrium interest rate should

An increase in the discount rate will

We use interest rates to measure the opportunity cost of holding money.

What would be a way for the Federal Reserve to stimulate a sluggish economy?