Chat with AIExam 10: Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics
In the short run,price stability often conflicts with the goals of high employment and interest-rate stability.
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VerifiedTrue
An important lesson from the global financial crisis is that central banks and other regulators should have a laissez-faire attitude and let credit-driven bubbles proceed without any reaction.Intervention is always a mistake.
(35) VerifiedFalse
Discuss the unconventional liquidity provisions implemented by the Fed in 2007.
(38) VerifiedFederal Reserve has two objectives: employment and price stability. Generally, Fed focuses on the overnight interest rate to stabilize economic system but crisis of 2007-2008 called for broad and active role of Federal Reserve. Fed assumed the role of crisis protector and aggressively pursued policy which was aimed at stabilizing economy.
Federal Reserve move was unprecedented. It tried to lower down long run interest rate by purchasing toxic assets from market. It infused liquidity in market and spurred purchasing power. It was called quantitative easing. Quantitative easing was last resort since interest rate was already near zero, thus, it could not be lowered down further. Quantitative easing was unconventional form of monetary policy.
References:
Federal Reserve, Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, December 2013.
Janet Yellen, “Challenges Confronting Monetary Policy,” speech at the 2013 National Association for Business Economics Policy Conference, Washington, DC, March 4, 2013, http://www.federalreserve.gov/newsevents/sp
Testimony of Fed Chairman Ben Bernanke, in U.S. Congress, House Committee on Financial Services,
Explain how the Fed's use of its three tools of monetary policy affect supply and demand in the market for reserves and the equilibrium federal funds interest rate.
(33) When a bank repays a discount loan to the Fed,there is a(n)________ in reserves in the banking system and a(n)________ in the monetary base.
(29) Discuss how the monetary policy of the European Central Bank is similar to the U.S.How are they different?
(34) As of June 2013,the consolidated balance sheet of the Federal Reserve System included about ________ in assets.
(33) The Fed's monetary policy strategy can be described as follows:
(33) Explain why the use of an interest rate targeting strategy may result in procyclical monetary growth.
(42) If the desired intermediate target is a monetary aggregate,then the preferred operating target will be a(n)________ variable like the ________.
(38) The Federal Reserve will engage in an outright purchase if it wants to ________ reserves ________ in the banking system.
(28) The Federal Reserve will engage in a matched sale-purchase transaction when it wants to ________ reserves ________ in the banking system.
(40) The goal for high employment should be a level of unemployment at which the demand for labor equals the supply of labor.Economists call this level of unemployment the
(41) If the Fed uses the federal funds rate as an interest rate target,fluctuations in the reserves demand curve will cause ________ to fluctuate.
(33) If the Fed uses nonborrowed reserves,a reserve aggregate,as a target,fluctuations in the reserves demand curve will cause ________ to fluctuate.
(29) Decreased transparency of the monetary policy strategy through communication with the public and the markets about the plans and objectives of monetary policymakers is an element of inflation targeting.
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