Question 1

Explain how the Keynesians believe an increase in the money supply will affect the economy.

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Question 2

Describe the equation of exchange and its implications for monetary policy.

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Question 3

In July 2013, Peruvian economists suggested that the Peruvian Central Bank might lower reserve requirements.
I. What problems might the Peruvian economy have been facing if its central bank was considering lowering reserve requirements?
II. If the Federal Reserve faced the same problems in the U.S. economy, which of its three traditional tools would it use to lower interest rates?

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Question 4

The Bank of Ghana met in September 2013 to decide the appropriate positioning of the bank's policy rate. This closely watched rate is supposed to be an indicator and is supposed to serve as a reference cap for all other interest rates. What rate in the United States is comparable to the bank policy rate in Ghana?

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Question 5

Why is a policy that targets nominal income or output the Federal Reserve's best course of action in the event of a short-run supply shock? Draw a graph to support your response.

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Question 6

Describe what happens when a demand shock reduces aggregate demand. What policy or policies could be enacted to counter this shock? Support your response with a graph.

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Question 7

Compare and contrast the three models of monetary theory.

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Question 8

What measures did the European Central Bank take to prevent financial crises in individual countries from collapsing the Eurozone?

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Question 9

If the Federal Reserve tries to target inflation near 2%, the inflation rate is 3.1%, and output is 2% below potential GDP, what is the target federal funds rate, according to the Taylor rule?

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Question 10

Describe why the Federal Reserve targets price stability in the long run and inflation rates and output in the short run.

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Question 11

Briefly explain how inflation targeting works. When is contractionary policy used? When is expansionary policy used?

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Question 12

What are some of the arguments for and against the use of monetary rules? Which argument do you agree with and why?

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Question 13

In September 2012, Norway's central bank said it would delay plans to tighten monetary policy. When the Norges Bank pursues tighter monetary policy, what is likely to happen to the Norwegian krone and Norway's imports from other countries?

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Question 14

What would the Federal Reserve likely do to combat unemployment?

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Question 15

Explain the liquidity trap.

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Question 16

Describe the controversy over whether the Federal Reserve should have discretion or be governed by simple monetary rules. Support your response with examples.

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Question 17

If the Federal Reserve tries to target inflation near 2%, the inflation rate is 5.3%, and output is 1.5% above potential GDP, what is the target federal funds rate, according to the Taylor rule?

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Question 18

The Humphrey-Hawkins Full Employment Act mandates that the Fed implement monetary policies that will promote economic growth accompanied by high employment, stable prices, and moderate long-term interest rates. Why, then, do politicians rail against the Fed when it pursues contractionary monetary policy to promote price stability?

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Question 19

What effect did low interest rates have on the housing market in the early 2000s? How did low interest rates contribute to problems in the housing market?

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Question 20

When the European Central Bank made loans to member countries, it sometimes attached conditions to the loans. What were the MOST common requirements for getting these loans?

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Quiz 13: Monetary Policy

Explain how the Keynesians believe an increase in the money supply will affect the economy.

Describe the equation of exchange and its implications for monetary policy.

Why is a policy that targets nominal income or output the Federal Reserve's best course of action in the event of a short-run supply shock? Draw a graph to support your response.

Describe what happens when a demand shock reduces aggregate demand. What policy or policies could be enacted to counter this shock? Support your response with a graph.

Compare and contrast the three models of monetary theory.

What measures did the European Central Bank take to prevent financial crises in individual countries from collapsing the Eurozone?

If the Federal Reserve tries to target inflation near 2%, the inflation rate is 3.1%, and output is 2% below potential GDP, what is the target federal funds rate, according to the Taylor rule?

Describe why the Federal Reserve targets price stability in the long run and inflation rates and output in the short run.

Briefly explain how inflation targeting works. When is contractionary policy used? When is expansionary policy used?

What are some of the arguments for and against the use of monetary rules? Which argument do you agree with and why?

In September 2012, Norway's central bank said it would delay plans to tighten monetary policy. When the Norges Bank pursues tighter monetary policy, what is likely to happen to the Norwegian krone and Norway's imports from other countries?

What would the Federal Reserve likely do to combat unemployment?

Explain the liquidity trap.

Describe the controversy over whether the Federal Reserve should have discretion or be governed by simple monetary rules. Support your response with examples.

If the Federal Reserve tries to target inflation near 2%, the inflation rate is 5.3%, and output is 1.5% above potential GDP, what is the target federal funds rate, according to the Taylor rule?

What effect did low interest rates have on the housing market in the early 2000s? How did low interest rates contribute to problems in the housing market?

When the European Central Bank made loans to member countries, it sometimes attached conditions to the loans. What were the MOST common requirements for getting these loans?