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Exam 17: Monetary Policy

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Question 21

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Figure 17-11 -Refer to Figure 17-11.In the dynamic model of AD-AS in the figure above,if the economy is at point A in year 1 and is expected to go to point B in year 2,and the Federal Reserve pursues no policy,then at point B

A) there is pressure on wages and prices to rise.
B) the unemployment rate is very, very low.
C) firms are operating above their normal capacity.
D) the economy is below full employment.

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Question 22

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Monetary policy could be procyclical if the Federal Reserve

A) is late recognizing that a recession has begun and conducts expansionary monetary policy.
B) is quick to recognize that a recession has begun and conducts expansionary monetary policy.
C) is late recognizing that a recession has begun and does not conduct expansionary monetary policy.
D) is quick to recognize that a recession has begun and does not conduct expansionary monetary policy.

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Question 23

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Increases in the price level

Table 17-3 $\begin{array}{|c|l|l|c|}\hline \text { Year } & \text { Potential Real GDP } & \text { Real GDP } & \text { Price Level } \\\hline 2018 & \$ 18.0 \text { trillion } & \$ 18.0 \text { trillion } & 150 \\\hline 2019 & 18.5 \text { trillion } & 18.8 \text { trillion } & 154 \\\hline\end{array}$ -Refer to Table 17-3.Consider the hypothetical information in the table above for potential real GDP,real GDP,and the price level in 2018 and in 2019 if the Federal Reserve does not use monetary policy.If the Fed uses monetary policy successfully to keep real GDP at its potential level in 2019,which of the following will be lower than if the Fed had taken no action?

The body that is responsible for dating the beginning and ending dates for a recession is

The situation in which short-term interest rates are pushed to zero,leaving the central bank unable to lower them further is known as

In the following table,fill in the columns for your return on investment if the price of your house increased or decreased by 40 percent,based on the down payments specified in the first column. Return on Your Investment From $\begin{array}{|c|c|c|}\hline \text { Down Payment } & \begin{array}{c}\text { A } 40 \text { Percent Increase } \\\text { in the Price of Your } \\\text { House }\end{array} & \begin{array}{c} \text {A 40 Percent Decrease }\\\text { in the Price of Your } \\\text { House }\end{array} \\\hline 100 \% & & \\\hline 20 & & \\\hline 10 & & \\\hline 5 & & \\\hline\end{array}$

Under the monetary growth rule proposed by the monetarists,the money supply would grow each year at a constant rate equal to the long-run rate of growth of

An increase in the price level causes

The economy suffered a mild recession in 2001.Despite the recession,home sales and durable goods sales remained high.Which of the following is a plausible explanation?

A repurchase agreement is the same as an open market purchase of Treasury securities.

Buying a house during a recession may be a good idea if your job seems secure because the Federal Reserve often lowers interest rates during a recession.

In 2008,the Fed began paying banks interest on their reserve holdings.

With global borrowing costs so low, economic analysts are warning that central banks need to be prepared to set negative interest rates during the next economic downturn. Several central banks in Europe set negative interest rates in 2014, as did the Japanese central bank in 2016, in an attempt to spur lending. The global market value of negative-yielding bonds rose to $8.6 trillion in mid-2017 due to low inflation and increased perceptions of geopolitical risk. The current U.S. economic expansion is the third longest since the 19th century, and credit markets are showing signs of reaching a cyclical peak. According to Harvard professor Kenneth Rogoff, low interest rates this late in an economic cycle are unprecedented, noting that the Fed cut interest rates by an average of 5.5 percentage points in the nine recessions since the 1950s, and this would be impossible today without negative interest rates. Source: Sid Verma and Cecile Gutscher, "With Next Recession Looming, Central Banks Better Make Peace With Negative Rates," bloomberg.com, August 14, 2017. -Refer to the Article Summary.Implementing a negative interest rate policy,as is discussed in the article summary,would be an example of ________ monetary policy designed to ________ aggregate demand.

The federal funds rate is

Most economists believe that the best monetary policy target is

Figure 17-12 -Refer to Figure 17-12.In the dynamic AD-AS model,if the economy is at point A in year 1 and is expected to go to point B in year 2,and the Federal Reserve pursues no policy,then at point B

With the Troubled Asset Relief Program (TARP),the Treasury provided funds to banks in exchange for stock.

When the price of a financial asset ________ its interest rate will ________.

While many analysts defended the actions taken by the Fed and the Treasury to respond to the financial crisis in 2008,others were critical of these actions.The critics were concerned that by not allowing large firms to fail