Macroeconomics (MindTap Course List)
10th Edition
ISBN: 9781285859477
Author: William Boyes, Michael Melvin
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 6E
To determine
State the reason behind Fed not following a policy of unexpectedly increase in money supply to increase the growth of money supply if unexpectedly growth in money supply can increase the real
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Which of the following best describes the cause-effect chain of an expansionary monetary policy?
A)
A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
B)
A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
C)
An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP.
D)
An increase in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP.
If the Federal Reserve wants to keep aggregate demand (i.e. spending growth) stable, what will it do to the growth rate of money supply when a lot of good news comes out about the economy increase it, decrease it, or leave it unchanged? Explain your answer.
During times of rising inflation, the Fed will undertake
monetary policy or "tight money policy."
Chapter 15 Solutions
Macroeconomics (MindTap Course List)
Knowledge Booster
Similar questions
- If the economy is able to self-correct from a negative GDP gap, why might the Fed wish to intervene in the market?arrow_forwardSuppose that inflation is 2 percent, the federal funds rate is 4 percent, and real GDP falls 2 percent below potential GDP. According to the Taylor rule, in what direction and by how much should the Fed change the real federal funds rate?arrow_forwardWhy can’t the Fed automatically maintain full employment and low inflation?arrow_forward
- Suppose the economy is initially at long run equilibrium, when there is an unexpected decrease in oil prices in the country.How does this impact the economy? (write out either "inflationary" or "recessionary" In response to this what monetary policy would the Fed employ? (write one of the following: "raise taxes", "lower taxes", "raise money supply", or "lower money supply"What is the most likely way the Fed will accomplish this change in the monetary policy? (write one of the following: "buy securities", "sell securities", "raise discount rate", "lower discount rate", or "legislation"This action by the Fed will cause interest rates to _______. (Write out "increase" or "decrease"The end result of the monetary policy is a shift of which curve in which direction. (Write out one of the following: "AD right", "AD left" "AS left", "AS right"arrow_forwardif the current unemployment rate exceeds the natural rate the fed should increase the federal fund rate true or falsearrow_forwardA problem that the Fed faces when it attempts to control the money supply is that the Fed can only control excess reserves but not total reserves. the Fed has to get the approval of the U.S. Treasury Department whenever it uses any of its monetary policy tools. the Fed does not have a tool that it can use to change the money supply by either a small amount or a large amount. the Fed does not control the amount of money that households choose to hold as deposits in banks.arrow_forward
- TRUE FALSE The more the Fed accommodates shocks to money demand, the larger the (government) spending multiplier.arrow_forwardWhen economists speak of the "zero lower bound problem" that the Fed sometimes faces, what are they referring to? 1. It is when short term interest rates are close to zero meaning the Fed can no longer use changes in interest rates to stimulate the economy 2. It is when economic growth in the economy has reached zero percent and the Fed must use aggressive monetary policy 3. It is when the Fed has sold all the securities on its balance sheet and can no longer impact the money supply using open market operations 4. It is when banks choose to hold no excess reserves, making it impossible for the Fed to lower the discount ratearrow_forwardWhy does the Fed want to avoid an “overheating” economy?arrow_forward
- Explain the FED role to cope with rising inflation.arrow_forward2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. 12 Money Supply 10 Money Demand Money Supply MD1 2 MD2 10 20 30 40 50 60 MONEY (Billions of dollars) INTEREST RATE (Percent)arrow_forwardWhen the Fed decreases the discount rate, banks are likely to the money supply their lending and A) increase; increases B) increase; decreases C) decrease; increases D) decrease; decreasesarrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics (MindTap Course List)EconomicsISBN:9781337617383Author:Roger A. ArnoldPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning