Homework Chapter 15

Monetary policy refers to the actions the

Federal Reserve takes to manage the money supply and interest rates to pursue its economic objectives.

The Federal​ Reserve’s four goals of monetary policy are

Price​ stability, high​ employment, economic​ growth, and stability of financial markets and institutions.

Monetary policy refers to the actions the Federal Reserve takes to manage

The money supply and interest rates to pursue its economic objectives.

The Federal​ Reserve’s two main monetary policy targets are

The money supply and interest rates.

The money demand curve has a

Negative slope because an increase in the interest rate decreases the quantity of money demanded.

An increase in the interest rate causes

A movement up along the money demand curve.

Which of the following would cause the money demand curve to shift to the​ left?

A decrease in real GDP

Which of the following is​ true?

The money market model is essentially a model of that determines the short-term nominal rate of interest.

For purposes of monetary​ policy, the Federal Reserve has targeted the interest rate known as the

Federal funds rate.

The monetary policy target the Federal Reserve focuses primarily on today is

The interest rate.

The interest rate that banks charge other banks for overnight loans is the

Federal funds rate.

The Fed can increase the federal funds rate by

selling Treasury​ bills, which decreases bank reserves.

If the Fed raises the interest​ rate, this will​ ________ inflation and​ ________ real GDP in the short run.

reduce; lower

An increase in real GDP

increases the buying and selling of goods and increases the demand for money as a medium of exchange.

Increases in the price level

increase the quantity of money needed for buying and selling.

If the Fed buys Treasury​ bills, this will shift the

money supply curve to the right.

An increase in the money supply will

decrease the interest rate.

Buying a house during a recession may be a good idea if your job is secure because the Federal Reserve often

lowers interest rates during recessions.

The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect

real interest rates.

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

increase; decrease

Expansionary monetary policy refers to the​ ________ to increase real GDP.

Federal​ Reserve’s increasing the money supply and decreasing interest rates

If the Fed pursues expansionary monetary policy then

the money supply will​ increase, interest rates will fall and GDP will rise.

If the Fed pursues expansionary monetary​ policy,

aggregate demand will​ rise, and the price level will rise.

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

Potential GDP is forecasted to be higher than equilibrium GDP.

Contractionary monetary policy causes

aggregate demand to fall and the price level to fall.

If the​ Fed’s policy is​ contractionary, it will

use open market operations to sell Treasury bills.

In which of the following situations would the Fed conduct contractionary monetary​ policy?

The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP.