Question 1

Unexpected inflation harms workers and other resource suppliers who have ________ prices in the ________ run.

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Question 2

Consider this excerpt from the textbook: "From 1929 to 1933,prior to the establishment of federal deposit insurance,over 9,000 banks failed in the United States.Because of these bank failures,people began holding their money outside the banking system.This action contributed to a significant contraction in the money supply....After peaking at $676 billion in 1931,the M2 money supply fell to just $564 billion in 1933.This drastic decline was one of the major causes of the Great Depression." Looking back on the Great Depression,what do most economists believe the Federal Reserve should have done to try to limit the negative effects of the Depression?

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Question 3

You have just been chosen as an economist on the Board of Governors for the Federal Reserve.After years of constant growth,the U.S.economy begins to fall into a recession.What type of monetary policy do you suggest to the board and why?

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Question 4

What is quantitative easing? What are the benefits of this new monetary tool?

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Question 5

Monetary policy has real effects only when:

Accepted Answer

Monetary policy relies on the ability of changes in interest rates to affect spending, investment, and employment. If all prices were flexible, then these changes in interest rates would immediately cause corresponding changes in prices and the real effects of monetary policy would be minimal. However, because some prices (particularly those for labor and long-term contracts) are sticky, changes in interest rates can lead to changes in spending and employment in the short run. Inflation expectations and full employment output are also factors that can affect the effectiveness of monetary policy, but the stickiness of some prices is the key factor determining whether monetary policy has real effects. Congress does not conduct monetary policy in the United States; that responsibility falls to the Federal Reserve.

Question 6

In the fall of 2007,it was clear that the U.S.economy was slowing.The unemployment rate rose from 4.4% to 5% between May and June 2007,and real GDP grew by just 1.7% in the fourth quarter.The U.S.economy officially entered the recession in December 2007.We now know that the nation's economy was entering several years of low growth and high unemployment.Many economists believe that a decline in aggregate demand was one cause of the recession.What did the Federal Reserve do in response to this decline in aggregate demand?

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Question 7

When inflation is expected,the real effect on the economy is:

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Question 8

Why does changing the reserve requirement prove less effective than open market operations?

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Question 9

Explain how expansionary monetary policy can lead to inflation,and discuss the types of individuals who are hurt by unexpected inflation.

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Question 10

Explain the difference between "real" and "nominal" effects concerning monetary policy and its effect on the economy.

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Question 11

Explain the difference between expansionary monetary policy and contractionary monetary policy.

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Question 12

Explain the impact of contractionary monetary policy on the entire macroeconomy in the short run.Be sure to use a step-by-step analysis of the macroeconomy.

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Question 13

Answer the following questions using an aggregate demand-aggregate supply model when appropriate.
a.Use a graph to represent an economy at long-run equilibrium.
b.Now graph what happens when aggregate demand decreases.
c.Referring to your graph, is this economy in an expansion or recession now?
d.Continuing with the economy you have graphed earlier, what type of monetary policy would you suggest be taken by the Federal Reserve?
e.What will this policy you suggested do to your aggregate demand-aggregate supply model?

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The answer of Answer the following questions using an aggregate...

Question 14

Expectations:

Accepted Answer

Expectations can have a significant impact on monetary policy by dampening its effects. For example, if consumers expect inflation to increase, they may preemptively cut back on their spending, which can reduce the impact of an expansionary monetary policy intended to stimulate economic growth. Therefore, central banks and policymakers must consider managing expectations and communication strategies to ensure that their policy decisions are understood and appropriately received by market participants.

Question 15

Explain the impact of expansionary monetary policy on the entire macroeconomy in the short run.Be sure to use a step-by-step analysis of the macroeconomy.

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Question 16

If the required reserve ratio is 100%,could the Federal Reserve still change the money supply with open market operations? Explain whether it could or could not.

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Question 17

What are the reasons behind why the Federal Reserve uses government bonds for open market operations?

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Question 18

Because you are an economics student,your parents are always asking you about the macroeconomy.Over the past few months,they have seen the economy expanding at a very fast pace and your parents are worried about inflation.Your parents ask you,"What type of monetary policy do you expect the Federal Reserve to conduct if it expected high levels of inflation were on the horizon?" Explain your answer.

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Question 19

When an employer is forced to increase wages at the same rate of inflation,the:

Accepted Answer

When an employer is forced to increase wages at the same rate of inflation, it is known as a cost-of-living adjustment (COLA). This is done to ensure that the purchasing power of the employee's wages remains the same in the face of rising prices due to inflation.

Question 20

If inflation is expected:

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...

Quiz 16: Monetary Policy

Unexpected inflation harms workers and other resource suppliers who have prices in the run.