Question 1

In September 2012 the Fed announced that it would buy $40 billion of mortgage backed securities per month.One goal of this policy was to ________ the price of these securities and thereby help ________.

Accepted Answer

The policy announced by the Fed in September 2012 was aimed at raising the price of mortgage-backed securities, which would, in turn, help to lower long-term interest rates. This would make mortgages more affordable, which could stimulate housing demand and support economic growth.

Question 2

In the short run,the Fed's actions to fight an inflationary gap shift the

Accepted Answer

To combat an inflationary gap, the Federal Reserve (Fed) would typically increase interest rates or use other contractionary monetary policies. These actions would decrease overall spending in the economy, leading to a leftward shift of the aggregate demand curve.

Question 3

Which of the following is a problem in pursuing monetary policy?

Accepted Answer

The answer of Which of the following is a problem...

Question 4

Suppose that initially real GDP equals potential GDP.Then a decrease in aggregate demand occurs.According to the Taylor rule,the Fed should ________ the federal funds rate by ________ government securities in the open market.

Accepted Answer

According to the Taylor rule, when there is a decrease in aggregate demand, the Fed should lower the federal funds rate to stimulate spending and increase aggregate demand. To lower the federal funds rate, the Fed should buy government securities in the open market, which increases the money supply and lowers interest rates. Therefore, the correct choice is D - lower; buying.

Question 5

One problem with the ripple effect from the Fed's monetary policy is

Accepted Answer

The long and drawn out transmission process of the Fed's monetary policy can make it difficult to predict the exact effects of policy changes and can lead to unintended consequences in the economy.

Question 6

Suppose that initially real GDP equals potential GDP.Then an increase in aggregate demand occurs.According to the Taylor rule,the Fed should ________ the federal funds rate by ________ government securities in the open market.

Accepted Answer

When aggregate demand increases, it can lead to inflationary pressures. According to the Taylor rule, the Federal Reserve should respond by raising the federal funds rate to cool down the economy. The Fed raises the federal funds rate by selling government securities in the open market, which decreases the money supply and increases interest rates.

Question 7

Uncertainty about monetary policy

Accepted Answer

Uncertainty about monetary policy can cause investors to be hesitant and keep investment low. This can have a negative impact on economic growth. The other options are not accurate. While uncertainty about monetary policy may have played a role in the 2008 financial crisis, it was not the sole factor. The Fed does use inflation rate targeting, and uncertainty about monetary policy does not necessarily make deposits in banks more desirable.

Question 8

During the financial crisis of 2008-2009,the Fed's actions to supply reserves to the banking system was an attempt to

Accepted Answer

The Fed's actions to supply reserves to the banking system during the financial crisis of 2008-2009 were an attempt to make certain that banks had enough liquidity to avoid collapse. The Fed's interventions aimed to provide confidence to financial institutions and markets, to ensure that they would continue to function and support economic activity.

Question 9

In order to combat inflation,the Fed will ________ the federal funds rate thereby ________ the quantity of money.

Accepted Answer

Raising the federal funds rate makes borrowing more expensive, which decreases the quantity of money in circulation, helping to combat inflation.

Question 10

-Which aggregate supply-aggregate demand diagram above shows the effect on real GDP and the price level of monetary policy when it is used to fight a recession?

Accepted Answer

Monetary policy to fight a recession typically involves increasing the money supply, which shifts the aggregate demand curve to the right, increasing real GDP and the price level.

Question 11

Businesses become convinced that future profits from investment will be less than initially believed.This conviction leads to a change in aggregate ________ and so the Fed should ________ the federal funds rate if it wants to try to offset this change.

Accepted Answer

When businesses become convinced that future profits from investment will be less than initially believed, they become less willing to invest and the aggregate demand decreases. In order to offset this change, the Fed should lower the federal funds rate to stimulate borrowing and investment, which will increase aggregate demand.

Question 12

In September 2012 the Fed announced that because of weak labor market conditions,it would ________ $40 billion of mortgage backed securities per month.Critics of the action said that banks have ________ excessive reserves so the action would be futile.

Accepted Answer

The Fed announced that it would buy $40 billion of mortgage backed securities per month, not sell them. Critics said that banks had huge amounts of excessive reserves, indicating that the action of buying more securities would be futile.

Question 13

In the short run,a rise in the federal funds rate ________ the price level and ________ real GDP.

Accepted Answer

An increase in the federal funds rate will lead to higher interest rates which will decrease investment and consumption. This will lead to a decrease in aggregate demand, causing a decrease in both the price level and real GDP, in the short run.

Question 14

-In the above figure,the economy experiences an increase in aggregate demand so that the aggregate demand curve shifts from AD₀ to AD₂.If the Fed wants to offset this change,it would ________.

Accepted Answer

To offset an increase in aggregate demand and stabilize the economy, the Federal Reserve would sell government securities on the open market. This action reduces the money supply, increases interest rates, and consequently dampens spending and investment, which helps to prevent inflationary pressures that might arise from the increased aggregate demand.

Question 15

-In the above figure,the economy experiences a decrease in aggregate demand so that the aggregate demand curve shifts from AD₀ to AD₁.If the Fed wants to offset this change,it would ________.

Accepted Answer

To offset a decrease in aggregate demand, the Federal Reserve (Fed) would aim to increase the money supply and stimulate economic activity. Purchasing government securities on the open market is a monetary policy tool that increases the money supply, encouraging spending and investment, which can help counteract the decrease in aggregate demand.

Question 16

In the short run,a rise in the federal funds rate shifts the

Accepted Answer

A rise in the federal funds rate increases the cost of borrowing which reduces investment spending and consumption spending. This decrease in spending shifts the aggregate demand (AD) curve leftward.

Question 17

A widespread fall in asset prices means that banks might become

Accepted Answer

A widespread fall in asset prices could cause the value of banks' assets to decrease, making them insolvent if their liabilities exceed their assets. If the value of assets decreases significantly, banks may not be able to meet their obligations to depositors, investors and other creditors, leading to insolvency.

Question 18

The Fed's actions to fight an inflation shift the

Accepted Answer

The Fed fights inflation by reducing the money supply or raising interest rates, which decreases overall spending and investment. This leads to a leftward shift in the aggregate demand curve, as consumers and businesses reduce spending.

Question 19

During the financial crisis of 2008-2009,the Fed was concerned about

Accepted Answer

During the financial crisis of 2008-2009, the Fed was primarily concerned with providing the banking system with enough liquidity to prevent a financial collapse. They implemented a range of programs and measures to inject liquidity into the financial system and stabilize the economy. While concerns about asset bubbles and interest rates were also present, the focus was on preventing a systemic crisis.

Question 20

A rise in the federal funds rate

Accepted Answer

The answer of A rise in the federal funds rate
...

Quiz 14: Monetary Policy

In September 2012 the Fed announced that it would buy $40 billion of mortgage backed securities per month.One goal of this policy was to the price of these securities and thereby help .

In the short run,the Fed's actions to fight an inflationary gap shift the

Which of the following is a problem in pursuing monetary policy?

Suppose that initially real GDP equals potential GDP.Then a decrease in aggregate demand occurs.According to the Taylor rule,the Fed should the federal funds rate by government securities in the open market.

One problem with the ripple effect from the Fed's monetary policy is

Suppose that initially real GDP equals potential GDP.Then an increase in aggregate demand occurs.According to the Taylor rule,the Fed should the federal funds rate by government securities in the open market.