Exam 26: Monetary Policy

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According to the Taylor rule, does the target for the federal funds rate respond differently for an increase in inflation caused by an increase in aggregate demand and for an increase in inflation caused by a decrease in short-run aggregate supply? Explain whether there is or is not a difference in how the target for the federal funds rate changes.

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Question 1

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The target for the federal funds rate responds differently. The current inflation rate and the inflation gap are the same in both cases, but the output gap differs. The output gap (percentage difference between real GDP and potential real GDP) will be positive for the inflation caused by an increase in aggregate demand, but negative for the inflation caused by a decrease in short-run aggregate supply. The target for the federal funds rate will be higher in the case of the increase in inflation caused by an increase in aggregate demand.

An increase in the interest rate should the demand for dollars and the value of the dollar, and net exports should .

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Question 2

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The Fed's two main monetary policy targets are

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Question 3

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Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

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Question 4

Figure 26-7 -Refer to Figure 26-7. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD-AS model in the figure above, this would be depicted as a movement from

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Question 5

The situation in which short-term interest rates are pushed to zero, leaving the central bank unable to lower them further is known as

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Question 6

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively and real GDP to be relatively .

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Question 7

Most economists believe that the best monetary policy target is

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Question 8

The Taylor rule predicted a federal funds rate which was that set when Paul Volcker was chairman of the Fed, and a rate which was that set when Arthur Burns chaired the Fed.

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Question 9

What actions should the Fed take if it believes the economy is about to experience a high rate of inflation?

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Question 10

The Federal Reserve System's four monetary policy goals are

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Question 11

An increase in the demand for Treasury bills will

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Question 12

Falling interest rates can

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Question 13

Suppose you buy a house for $250,000. One year later, the market price for the house has fallen to $200,000. What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

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Question 14

According to the Taylor rule, the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate, the current inflation rate, one-half times the , and one-half times the .

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Question 15

When the Federal Reserve increases the money supply, at the previous equilibrium interest rate households and firms will now have

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Question 16

Write out the expression for the Taylor rule. Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.

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Question 17

Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve

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Question 18

The smaller the fraction of an investment financed by borrowing,

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Question 19

Figure 26-11 -Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely

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Question 20

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Exam 26: Monetary Policy

An increase in the interest rate should ________ the demand for dollars and the value of the dollar, and net exports should ________.

The Fed's two main monetary policy targets are

Which of the following situations is one in which the Fed will potentially pursue expansionary monetary policy?

Figure 26-7 -Refer to Figure 26-7. Suppose the economy is in a recession and the Fed pursues an expansionary monetary policy. Using the static AD-AS model in the figure above, this would be depicted as a movement from

The situation in which short-term interest rates are pushed to zero, leaving the central bank unable to lower them further is known as

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively ________ and real GDP to be relatively ________.

Most economists believe that the best monetary policy target is

The Taylor rule predicted a federal funds rate which was ________ that set when Paul Volcker was chairman of the Fed, and a rate which was ________ that set when Arthur Burns chaired the Fed.

What actions should the Fed take if it believes the economy is about to experience a high rate of inflation?

The Federal Reserve System's four monetary policy goals are

An increase in the demand for Treasury bills will

Falling interest rates can

Suppose you buy a house for $250,000. One year later, the market price for the house has fallen to $200,000. What is the return on your investment in the house if you made a down payment of 10 percent and took out a mortgage loan for the other 90 percent?

According to the Taylor rule, the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate, the current inflation rate, one-half times the ________, and one-half times the ________.

When the Federal Reserve increases the money supply, at the previous equilibrium interest rate households and firms will now have

Write out the expression for the Taylor rule. Use the Taylor rule to explain how a decline in real GDP below potential GDP will affect the Federal Reserve's target for the federal funds rate.

Which of the following is true about the Federal Reserve and its ability to prevent recessions? The Federal Reserve

The smaller the fraction of an investment financed by borrowing,

Figure 26-11 -Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, the Federal Reserve would most likely

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Inflation, Unemployment, and Federal Reserve Policy

Macroeconomics in an Open Economy

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An increase in the interest rate should the demand for dollars and the value of the dollar, and net exports should .

Expansionary monetary policy to prevent real GDP from falling below potential real GDP would cause the inflation rate to be relatively and real GDP to be relatively .

The Taylor rule predicted a federal funds rate which was that set when Paul Volcker was chairman of the Fed, and a rate which was that set when Arthur Burns chaired the Fed.

According to the Taylor rule, the Fed should set the target for the federal funds rate equal to the sum of the equilibrium real federal funds rate, the current inflation rate, one-half times the , and one-half times the .