Bundle: Principles of Macroeconomics, Loose-Leaf Version, 7th + LMS Integrated Aplia, 1 term Printed Access Card
7th Edition
ISBN: 9781305242500
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 21, Problem 3QCMC
To determine
Role of interest rate targets in Fed policy.
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The Fed’s target for the federal funds ratea. is an extra policy tool for the central bank, inaddition to and independent of the money supply.b. commits the Fed to set a particular money supplyso that it hits the announced target.c. is a goal that is rarely achieved because the Fedcan determine only the money supply.d. matters to banks that borrow and lend federalfunds but does not influence aggregate demand.
Suppose that the Bank of Canada determines that the Canadian economy is currently overproducing. What can the Central Bank do to slow down economic activity?
a. The Central bank can pursue an expansionary monetary policy by increasing the money supply, causing a decrease in the interest rate. As a result, real GDP will increase and the price level will increase.
b. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing a decrease in the interest rate. As a result, real GDP will decrease and the price level will decrease
c. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will decrease.
d. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will increase
e. The…
When the Fed targets the amount of money in the economy, interest rates
become more variable.
True
False
Chapter 21 Solutions
Bundle: Principles of Macroeconomics, Loose-Leaf Version, 7th + LMS Integrated Aplia, 1 term Printed Access Card
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- Monetary Policy - End of Chapter Problems Ther Fed creates a lower and upper bound for the federal funds rate and the incentives that drive financial institutions to move the federal funds market to that target. a. Select the tool(s) the Fed uses to incentivize financial institutions to move the federal funds market to the targeted federal funds rate. The Fed buys and sells government bonds. borrows money overnight from financial institutions. Incorrect b. Select the tool(s) the Fed uses to create a lower bound for the federal funds rate. The Fed borrows money overnight from financial institutions. lends directly to banks through the discount window. Incorrect pays banks interest on excess reserves. lends directly to banks through the discount window. The Fed c. Select the tool(s) the Fed uses to create an upper bound for the federal funds rate. pays banks interest on excess reserves. lends directly to banks through the discount window. pays banks interest on excess reserves. borrows…arrow_forward(a) The Federal Reserve Bank of the United States (i.e., the Fed) is responsible for financing the operations of the federal government. True or false? Explain. (b) Changes in reserve requirements are an effective monetary policy tool that the Fed uses frequently to control the money supply. True or false? Explain.arrow_forwardRead the event The Federal Reserve raises reserve requirements. What would likely result from this event? A. An economy would see a slight decrease in aggregate demand. B. Interest rates on loans decline. C. Consumer demand would increase thus increasing prices. D. Inflation would reach levels that are acceptable for full employment.arrow_forward
- If the Fed sells bonds, which of the following should increase? Select all that apply. The interest rate. The price level. OM1. The monetary base. Investment. GDP.arrow_forward1) when the fed realises that inflation is going up at an unstable rate for the economy , which of the following are they most likely do ? (a) print more money (b) increase the discount rate (c) lover the reserve ratioarrow_forwardWhen the Fed buys government bonds, a- the money supply decreases and the federal funds rate increases. b- the money supply decreases and the federal funds rate decreases. c- the money supply increases and the federal funds rate decreases. d- the money supply increases and the federal funds rate increases.arrow_forward
- For the January 2020 Press Release, answer the following question.A. For Column 8, complete the range of the Federal Funds Target AND the % change from the previous release.B. For Column 9, decide whether the Fed is buying or selling loans and whether they have increased or decreasedthe amount.arrow_forwardThe economy's unemployment rate is 2% and the inflation rate is 18%. The most appropriate policy for the Governor of the New York Fed to pursue would be: a. do nothing because the unemployment rate is too low.b. increase the money supply to try to reduce the unemployment rate. c. increase the money supply to try and increase the unemployment rate. d. none of the other responses are correct. e. reduce the money supply to try to reduce the inflation rate.arrow_forwardThe Fed typically increases the money supply by selling government bonds buying government loans selling government loans printing more currency buying government bondsarrow_forward
- When 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_forwardWhich one of these policies should the Fed engage in if unemployment is very high and inflation is under control? Select one: a. Buy government bonds through an Open Market Operation b. Print more money and give it directly to tax payers c. Lower corporate and income taxes d. Raise the discount rate e. Lower consumer confidencearrow_forwardWhen the Fed conducts an open market sale, it leads to a higher level of investment and output in the economy. True False Click to select your answer.arrow_forward
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