Question 1

In what way does the Federal Reserve's function as a lender of last resort create stability in an economy that is experiencing financial upheaval?

Accepted Answer

The answer of In what way does the Federal Reserve's...

Question 2

Reserves are:
A)the fraction of deposits kept in gold with the Federal Reserve.
B)the fraction of deposits kept in gold with the Federal Reserve
C)the deposits lent to finance illiquid investments.
D)the deposits lent to finance illiquid investments
E)the cash that banks need to keep on hand to make payments
F)the cash that banks need to keep on hand to make payments.
G)gold kept in the bank's vault
H)gold kept in the bank's vault.

Accepted Answer

The answer of Reserves are:
A)the fraction of deposits kept in...

Question 3

Suppose that the annual inflation rate is 7% and that output gap is +0.5%. If you were on the Federal Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

Accepted Answer

The answer of Suppose that the annual inflation rate is...

Question 4

Suppose that the annual inflation rate is 2% and that the output gap is -5%. If one were on the Federal Open Market Committee, what action would they prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

Accepted Answer

The answer of Suppose that the annual inflation rate is...

Question 5

The Fed rule-of-thumb:
A)provides guidance for setting a federal funds rate target
B)provides guidance for setting a federal funds rate target.
C)says that interest rates should often be negative.
D)says that interest rates should often be negative
E)provides guidance on the timing of monetary policy and fiscal policy.
F)provides guidance on the timing of monetary policy and fiscal policy
G)refers to a discretionary fiscal policy rule.
H)refers to a discretionary fiscal policy rule

Accepted Answer

The answer of The Fed rule-of-thumb:
A)provides guidance for setting a...

Question 6

Open-market operations are carried out by the Federal Reserve Bank of:
A)San Francisco.
B)San Francisco
C)Kansas City.
D)Kansas City
E)Philadelphia.
F)Philadelphia
G)New York.
H)New York

Accepted Answer

The Federal Reserve Bank of New York carries out open-market operations.

Question 7

_____ occurs when, instead of purchasing only _____ government debt, the Fed buys _____ government debt as well.
A)Quantitative easing; short-term; long-term.
B)Quantitative easing; short-term; long-term
C)Quantitative easing; long-term; short-term.
D)Quantitative easing; long-term; short-term
E)Contractionary monetary policy; short term; .long-term
F)Contractionary monetary policy; short term; long-term
G)Expansionary monetary policy; short-term; .long-term
H)Expansionary monetary policy; short-term; long-term

Accepted Answer

The answer of _____ occurs when, instead of purchasing only...

Question 8

_____ target is the goal set by the Fed for the _____ rate and uses monetary policy to hit that goal.
A)Inflation; inflation
B)Inflation; inflation.
C)Inflation; unemployment
D)Inflation; unemployment.
E)Nominal GDP; inflation.
F)Nominal GDP; inflation
G)Nominal GDP; unemployment.
H)Nominal GDP; unemployment

Accepted Answer

The answer of _____ target is the goal set by...

Question 9

According to the _____, the target federal funds rate should be positively related to the _____ rate and _____ related to the unemployment rate.
A)Fed rule-of-thumb; inflation; negatively.
B)Fed rule-of-thumb; inflation; negatively
C)Fed rule-of-thumb; inflation; positively.
D)Fed rule-of-thumb; inflation; positively
E)fiscal policy; inflation; positively.
F)fiscal policy; inflation; positively
G)Fed rule-of-thumb; poverty; positively.
H)Fed rule-of-thumb; poverty; positively

Accepted Answer

The answer of According to the _____, the target federal...

Question 10

Which statement is FALSE?
A)The Fed rule-of-thumb sets the federal funds rate on the basis of both the inflation rate and the output gap, whereas inflation targeting is based on a desired inflation rate
B)The Fed rule-of-thumb sets the federal funds rate on the basis of both the inflation rate and the output gap, whereas inflation targeting is based on a desired inflation rate.
C)The Fed rule-of-thumb sets the federal funds rate on the basis of past inflation rates, whereas inflation targeting is based on a forecast of the inflation rate
D)The Fed rule-of-thumb sets the federal funds rate on the basis of past inflation rates, whereas inflation targeting is based on a forecast of the inflation rate.
E)The Fed rule-of-thumb can be more flexible, whereas inflation targeting provides more transparency and accountability
F)The Fed rule-of-thumb can be more flexible, whereas inflation targeting provides more transparency and accountability.
G)The Fed rule-of-thumb sets the federal funds rate on the basis of past inflation rates, whereas inflation targeting is based on a target interest rate and business cycles
H)The Fed rule-of-thumb sets the federal funds rate on the basis of past inflation rates, whereas inflation targeting is based on a target interest rate and business cycles.

Accepted Answer

The answer of Which statement is FALSE?
A)The Fed rule-of-thumb sets...

Quiz 34: Monetary Policy

In what way does the Federal Reserve's function as a lender of last resort create stability in an economy that is experiencing financial upheaval?

Reserves are:

Suppose that the annual inflation rate is 7% and that output gap is +0.5%. If you were on the Federal Open Market Committee, what action would you prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

Suppose that the annual inflation rate is 2% and that the output gap is -5%. If one were on the Federal Open Market Committee, what action would they prescribe? How would this affect the economy, the inflation rate, and the unemployment rate?

The Fed rule-of-thumb:

Open-market operations are carried out by the Federal Reserve Bank of:

___ occurs when, instead of purchasing only _ government debt, the Fed buys ___ government debt as well.

_ target is the goal set by the Fed for the _ rate and uses monetary policy to hit that goal.

According to the ___, the target federal funds rate should be positively related to the _ rate and ___ related to the unemployment rate.

Which statement is FALSE?