Refer to the figure above. If the economy is at point b, to close theoutput gap the Federal Reserve canO buy US bonds and/or decrease the discount rate.O sell US bonds and/or decrease the discount rate.buy US bonds and/or increase the discount rate.O sell US bonds and/or increase the discount rate. PriceLRASAS2AS,level1aAD2AD1Real GDP per yearY. Y YoRefer to the figure above. If the economy is at point b, to close theoutput gap the Federal Reserve can

With economy is above the potential output level ie LRAS , the economy is in inflationary gap. To…

Refer to the figure above. If the economy is at point b, to close the output gap the Federal Reserve can O buy US bonds and/or decrease the discount rate. O sell US bonds and/or decrease the discount rate. O buy US bonds and/or increase the discount rate.

Refer to the figure above. If the economy is at point b, to close the output gap the Federal Reserve can O buy US bonds and/or decrease the discount rate. O sell US bonds and/or decrease the discount rate. O buy US bonds and/or increase the discount rate.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

100%

Refer to the figure above. If the economy is at point b, to close the
output gap the Federal Reserve can
O buy US bonds and/or decrease the discount rate.
O sell US bonds and/or decrease the discount rate.
buy US bonds and/or increase the discount rate.
O sell US bonds and/or increase the discount rate.

Price
LRAS
AS2
AS,
level
1
a
AD2
AD1
Real GDP per year
Y. Y Yo
Refer to the figure above. If the economy is at point b, to close the
output gap the Federal Reserve can

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In a regime of abundant reserves, the highest possible level of the fed funds rate that is on the demand curve for reserves is determined by A. the rate of interest on reserve balances, IORB. O B. the primary credit discount rate. OC. the interest rate on three-month Treasury bills. D. the prime interest rate. In a regime of abundant reserves, the lowest possible level of the fed funds rate that is on the demand curve for reserves is determined by OA. the primary credit discount rate. OB. the rate of interest on reserve balances, IORB. O C. the prime interest rate
Question 3 If the Federal Reserve wants to increase the money supply, it can O increase the reserve ratio, allowing banks to loan more money to customers. O reduce the reserve ratio, allowing banks to loan more money to customers. sell bonds on the open market to banks, allowing them to loan less money to customers. O increase the reserve ratio, making it harder for banks to loan money to customers. Question 4 DELL C
If the target rate of interest is lower than the equilibrium interest rate, the Federal Reserve will Treasury bills in the open market, the supply of money, and the interest rate to the target rate. O sell; increase; lower sell; decrease; raise O buy; decrease; raise O buy: increase; lower
To increase the money supply, the Fed could Select one: a. decrease the reserve requirement. b. None is correct. c. increase the discount rate. O d. sell government bonds.
The economy is in a recession. The Fed could take direct action to stimulate economic activity by O lowering short-term interest rates O increasing long-term interest rates increasing short-term interest rates O lowering long-term interest rates
Why does the 'Zero Lower Bound' pose a problem for the Federal Reserve? They are unable to push short term interest rates below zero to further stimulate the economy. O At the Zero Lower Bound the Federal Reserve is forced to raise interest rates. They are unable to assist investment banks outside of the Federal Reserve system. O At the Zero Lower Bound the money multiplier is infinity.
Classify each of the following as either a policy instru- ment or an intermediary target. Explain your answer. a. Long-term interest ratesb. Central bank interest rates c. M2d. Reserve requirements
Ordinarily, banks try to keep excess reserves as low as possible because: O the Fed requires them to do so it is profitable to do so an excessive level of reserves could cause a run on the bank it looks neater in their accounting records
Which of the following policies would the Federal Reserve most likely use if the economy was suffering from high inflation? O Decrease the required reserve rate O Buy bonds in the open market O Decrease the interest rate the Fed pays on bank reserves O Raise the discount rate
If the Fed sells the U.S. $200 million in government bonds, the total money supply will: O not change. decrease by more than $200 million. O decrease by less than $200 million but more than $0 million. O decrease by exactly $200 million.
How does Federal Reserve policy affect interest rates now and inthe future?
In the long run, what are the factors that will lead to lower interest rates? Discuss with the help of FED article's.