The Fed announced in September 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does finally begin to reduce bond purchases: O interest rates will rise. O interest rates will fall. stock prices will rise. bond prices will rise.

The Fed announced in September 2013 that it would postpone winding down its monetary stimulus until the economic recovery was stronger. When the Fed does finally begin to reduce bond purchases: O interest rates will rise. O interest rates will fall. stock prices will rise. bond prices will rise.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Macmillan Learning b. A central bank reduces the rate of interest that it charges to commercial banks on loans. expansionary c. The Federal Reserve purchases bonds on the open market. O expansionary d. The Federal Reserve decreases the discount rate. expansionary O contractionary expansionary contractionary contractionary e. A central bank increases the percentage of deposits that banks are required to keep in vaults. O contractionary.
In what ways can the Fed be subject to external pressure (Select all the apply from the options below) 1. The president can exercise control over the memebership of the Board of Governors and appoint a new chariman every four years 2. The Congress scrutinizes Fed's budgertary requests and can reduce the amounts requested if the Fed has fallen out of favour 3. The Congress can try to put pressure on the Fed and amend the Fed's charter 4. The Fed is subject to influence from different investors groups because it has to rely on external sources of funding
If the Fed buys government bonds from a bank, money supply O rises by the amount of the Fed purchase O rises by more than the amount of the Fed purchase O does not change
4 Which of the following policies did the Fed follow after 2014? O To unwind expansionary policy measures and try to return to a normal stance of policy. O To get the economy out of a recession. O To stimulate the U.S. financial and banking systems. O To lower interest rate in an attempt to stimulate economic growth. O None of these. 5 The recent use of discretionary fiscal policy was facilitated by O the elimination of the balanced budget amendment. O the ineffectiveness of monetary policy. O changing beliefs among economists about the lags of monetary policy. O the use of automatic policy rules. O the prediction of high rates of unemployment that could otherwise occur in the future if government did nothing. 6 For real and potential GDP to be equal, the budget surplus has to be zero. O True O False
A Wall Street Journal offered the following opinion of the bond market in September 2012, when inflation rate was about 2%: Ac€A?Someone buying long-term bonds yielding 1.5% or 2% and then seeing consumer price inflation of 4%, will be on the loosing end of the betAc€??. a. Explain verbally and illustrate graphically what will happen to the price of bonds if expected inflation increases to 4% from 2%. Be sure to include in your answer the demand the bond market. b. Explain why someone buying long-term bonds yielding 1.5% or 2% and then seeing consumer price inflation of 4%, will be on the loosing end of the bet. c. Suppose that you expect a greater increase in inflation than do others investors, but that you do not expect the increase to occur until 2015. Should you wait until 2015 to sell your bond? Briefly explain. d. The columnist also argued that long-term bonds would be a good investment if only Ac€A? when we get serious price deflationAc€?? Ac€?c *Explain verbally and illustrate…
When the Fed sells securities in the open market, the monetary base _______ and the interest rate _______. A. decreases; falls B. increases; rises C. decreases; rises D. increases; falls
What happens to the Federal Funds rate and US treasury interest rates when the Federal Reserve decides to sell bonds? Select an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer. They rise. с d They fall. They do not change.. The change is unpredictable.
A news website might have this headline: “Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent.” A more detailed account of the Fed’s action would say: “Today the Fed told its bond traders to sell enough bonds in open-market operations to make the federal funds rate decrease to 5.25 percent.” “Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount.” “Today the Fed took steps to decrease the money supply by an amount that is sufficient to decrease the federal funds rate to 5.25 percent.” “Today the Fed told its bond traders to buy enough bonds in open-market operations to make the federal funds rate decrease to 5.25 percent.”
the real interest rate to If the output gap is positive, the Federal Reserve will raise; cool inflationary pressures lower; reduce unemployment O lower; cool inflationary pressures O raise; reduce unemployment
The bond market is depicted in the graph to the right. a. The bond demand curve is downward sloping because A. lower bond prices translate into higher interest rates and returns. B. as the interest rate decreases people are willing to buy more bonds. C. the government sells more bonds at lower interest rates. D. the Fed's decision to buy or sell bonds is independent of the interest rate. b. Suppose the Fed decides to buy bonds. 1.) Using the line drawing tool, depict changes in the bond market. Properly label your line. 2.) Using the point drawing tool, label the new equilibrium point 'E₁'. Carefully follow the instructions above, and only draw the required objects. Price of Bonds 1000- 900- 800- 700- 600- 500- 400- 300- 200- 100- 0- 0 T 5 10 So Eo 15 20 25 30 35 Quantity of Bonds D 40 45 7 50 Q