If the economy is currently hitting the Fed's inflation target and GDP exactly equals the trend GDP, then the Fed will set the federal funds rate at percent. (Enter your response with no rounding.) Now suppose the economy heats up, causing the actual inflation rate to increase to 4 percent and the economy to rise 1.5 percent above trend GDP. In this case, the Fed will seek to set the federal funds rate at percent.(Enter your response with no rounding.) To achieve its target for the federal funds rate, the Fed may (Check all that apply.) O A. Increase the interest rate paid on reserves deposited at the Fed. O B. Sell Treasury bonds in the open market. O C. Increase corporate taxes. O D. Decrease lending from the discount window. O E. Increase the reserve requirement.

If the economy is currently hitting the Fed's inflation target and GDP exactly equals the trend GDP, then the Fed will set the federal funds rate at percent. (Enter your response with no rounding.) Now suppose the economy heats up, causing the actual inflation rate to increase to 4 percent and the economy to rise 1.5 percent above trend GDP. In this case, the Fed will seek to set the federal funds rate at percent.(Enter your response with no rounding.) To achieve its target for the federal funds rate, the Fed may (Check all that apply.) O A. Increase the interest rate paid on reserves deposited at the Fed. O B. Sell Treasury bonds in the open market. O C. Increase corporate taxes. O D. Decrease lending from the discount window. O E. Increase the reserve requirement.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The Chairman or Chairlady or Fed Chair (a politically correct term) of the Federal Reserve Bank has the power to override the votes of the FOMC and can independently carry out the monetary policy that they want as an individual. The FOMC is merely an advisory board to the Fed Chair. The FOMC has no real power, it's the Fed Chair (currently Jerome Powell) who has 100 percent of the power over U.S. monetary policy.
If a recessionary gap occurs in the short run, then in the long run a new equilibrium arises when input prices and expectations adjust downward, causing the short-run aggregate supply curve to shift downward and to the right and pushing equilibrium real GDP per year back to its long-run value. The Federal Reserve can eliminate a recessionary gap in the short run by undertaking a policy action that increases aggregate demand. Which of the following is one monetary policy action that could eliminate the recessionary gap in the short run? A. The Fed can increase the money supply through an open market purchase of Treasury securities. B. The Fed can lower taxes. C. The Fed can increase the money supply through an open market sale of Treasury securities. D. The Fed can decrease the money supply through an open market purchase of Treasury securities.
20) Use a graph to show the differences in the central bank reaction function if the Fed is more tolerant or less tolerant of deviations from inflation in the short run. 21) For each of the following scenarios, state the short-run effect on the AD curve. a. The price level decreases. b. The target inflation rate increases. c. The U.S. dollar falls in value relative to other currencies. d. Government spending increases. e. The Fed becomes more tolerant of deviations from the target inflation rate. 22) Explain why some shifts to the aggregate demand curve are temporary and why some are permanent.
Expected inflation is 1.5%. The economy is initially in macroeconomic equilibrium with a real interest rate of 3% and an output gap of 0%. That is, the economy is operating at its potential. Using the Fed model linking the IS-MP framework with the Phillips curve, draw a graph showing the effect of the following shock: A severe recession impacts most of Western Europe, where several of the US most important trade partners are located. Your graph should clearly indicate the conditions both before and after the shock.
Suppose the economy is experiencing inflation. If the Federal Reserve enacts contractionary monetary policy, interest rates will likely Multiple Choice rise causing prices to decrease. fall causing prices to increase. fall causing prices to decrease. rise causing prices to increase
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For the following questions, make use of provided information. Since the peak of the pandemic shutdowns, employment has been increasing. Unemployment peaked around 15% in April 2020, and was down to approximately 4% in February 2022. At the same time, estimated inflation rates have increased from approximately 1.5% in January 2021 to nearly 8% in February 2022. Some economists believe that the FOMC should instead increase interest rates by 0.50%. Do you agree? Explain your position. |
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