Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 33, Problem 3SPPA
To determine
To explain:
The impact on the price level in the U.S. and on the real
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose that the U.S. economy is at full employment when strong economic growth in Asia increases the demand for U.S.-produced goods and services.
How the U.S. price level and real GDP will change in the long run if the Fed takes monetary policy actions that are consistent with its objectives as set out in the Federal Reserve Act of 2000?
In this Decision Point activity you learned about how changes to monetary policy by the Federal Reserve should impact
your own decisions and the decisions of everyone across the economy. Apply what you learned in this decision point to the
following questions.
One of the tools the Fed uses to influence interest rates is to pay banks interest on excess reserves they hold overnight with
the Fed.
You're a director at a bank. Your bank currently holds $185 million in excess reserves at the regional Fed and you're
earning an annual rate of 2.42% on those excess reserves sitting at the Fed.
The Fed decides to decrease the interest rate it pays on excess reserves from an annual rate of 2.42% to 1.55%. In response,
you should
the amount of excess reserves held at the Fed and make
any given interest rate.
loans at
Suppose that the economy is producing above potential GDP and the Fed implements the correct change in monetary policy, but not until after the economy has passed the peak of the boom. Then
A) the Fed's contractionary policy will result in too large of a decrease in GDP.
B) the Fed's contractionary policy will result in too small of a decrease in GDP.
C) the Fed's expansionary policy will result in too small of a decrease in GDP.
D) the Fed's expansionary policy will result in too large of an increase in GDP.
Chapter 33 Solutions
Foundations of Economics (8th Edition)
Ch. 33 - Prob. 1SPPACh. 33 - Prob. 2SPPACh. 33 - Prob. 3SPPACh. 33 - Prob. 4SPPACh. 33 - Prob. 5SPPACh. 33 - Prob. 6SPPACh. 33 - Prob. 7SPPACh. 33 - Prob. 8SPPACh. 33 - Prob. 9SPPACh. 33 - Prob. 10SPPA
Ch. 33 - Prob. 11SPPACh. 33 - Prob. 1IAPACh. 33 - Prob. 2IAPACh. 33 - Prob. 3IAPACh. 33 - Prob. 4IAPACh. 33 - Prob. 5IAPACh. 33 - Prob. 6IAPACh. 33 - Prob. 7IAPACh. 33 - Prob. 8IAPACh. 33 - Prob. 9IAPACh. 33 - Prob. 10IAPACh. 33 - Prob. 11IAPACh. 33 - Prob. 12IAPACh. 33 - Prob. 1MCQCh. 33 - Prob. 2MCQCh. 33 - Prob. 3MCQCh. 33 - Prob. 4MCQCh. 33 - Prob. 5MCQCh. 33 - Prob. 6MCQCh. 33 - Prob. 7MCQ
Knowledge Booster
Similar questions
- Which of the below statements DOES NOT CORRECTLY describe the immense power or policy choice of the Federal Reserve (the Fed)? Group of answer choices The Fed can inject money into the financial system after sudden shocks, such as the 1987 stock market crash or the terrorist attacks on Sept. 11, 2001. The Federal Reserve controls the money supply and therefore the credit tap for the economy. The Fed can use monetary policy to counteract economic downturns or prevent them from happening. When the Fed opens the credit tap and increases the money supply, interest rates rise and people buy less and borrow less.arrow_forwardNaked Economics: Undressing the Dismal Science Book by Charles Wheelan Please refer to the chapter titled, "The Federal Reserve," in the Naked Economics book to answer this question. Which of the below statements DOES NOT CORRECTLY describe the immense power or policy choice of the Federal Reserve (the Fed), as explained in this chapter? 1) The Federal Reserve controls the money supply and therefore the credit tap for the economy. 2) The Fed can use monetary policy to counteract economic downturns, or prevent them from happening. 3) The Fed can inject money into the financial system after sudden shocks, such as the 1987 stock market crash or the terrorist attacks on Sept. 11, 2001. 4) When the Fed opens the credit tap and increases the money supply, interest rates rise and people buy less and borrow less.arrow_forwardYou will answer the following questions listed below. You will submit a Word document that will answer the following questions. Please submit your work using proper APA formatting. What actions should the Fed take if it believes the economy is about to experience a high rate of inflation? Now, let’s assume you are the President of the Fed and you have to make certain decisions in our economy. If the Fed orders a contractionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy: The money supply Interest rates Investment Consumption Net Exports The aggregate demand curve Real GDP The price level It should be minimum 3 word count with work cited page please.arrow_forward
- 41) The current chairman of the Federal Reserve System is A) Milton Friedman. B) Alan Greenspan. C) President Obama. D) Ben Bernanke. 42) The chairman of the Federal Reserve's Board of Governors A) controls the agenda of the Federal Open Market Committee meetings. B) is the main point of contact between the Fed and the President of the U.S. C) receives frequent background briefings on monetary policy issues from a large staff of economists and technical experts. D) All of the above answers are correct. 43) Most of the day-to-day power in monetary policy decisions lies with A) the President of the United States B) the Senate Banking Committee C) the chairman of the Board of Governors D) large commercial banks 44) On the Fed's balance sheet, assets include A) depository institutions deposits at the Federal Reserve and loans to depository institutions. B) U.S. government securities and loans to depository institutions. C)…arrow_forwardSuppose 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_forwardThe Fed's dual mandate is to promote maximum employment and keep prices stable (target inflation rate is 2%). Please first explain how the Fed has used its three monetary policy tools (required reserve ratio, discount rate and open market operations) since the great recession to stimulate the economyarrow_forward
- Monetary policy isn't always effective: Why couldn't monetary policy pull us out of the Great recession? The Great Recession officially lasted from December 2007 to June 2009. But the effects lingered on for several years thereafter, with slow growth of real GDP and high unemployment rates. These effects all occurred despite several doses of expansionary monetary policy. Not only did the Fed push short- term interest rates to nearly 0%, but it also engaged in several rounds of quantitative easing, purchasing hundreds of billions of dollars' worth of long-term bonds. Therefore, what are three possible reasons why monetary policy was not able to restore expansionary growth during and after the Great recession?arrow_forwardMonetary policy isn’t always effective: Why couldn’t monetary policy pull us out of the Great recession? The Great Recession officially lasted from December 2007 to June 2009. But the effects lingered on for several years thereafter, with slow growth of real GDP and high unemployment rates. These effects all occurred despite several doses of expansionary monetary policy. Not only did the Fed push short-term interest rates to nearly 0%, but it also engaged in several rounds of quantitative easing, purchasing hundreds of billions of dollars’ worth of long-term bonds. Therefore, what are three possible reasons why monetary policy was not able to restore expansionary growth during and after the Great recession?arrow_forwardWhich of the following is not one of the three tools used by the fed to implement US monetary policies? Open market operations, reserve requirement regulations, printing more money, discount ratearrow_forward
- Which of the following is not one of the tools of monetary policy used by the Fed? Changing the discount rate and the federal funds rate Changing the reserve requirement OMO buying and selling securities OMO changing the level of spending. All of the answers are tools of monetary policy.arrow_forward1) What are the goals of monetary policy according to the amended Federal Reserve Act? A) no unemployment, stable prices, and moderate long term interest rates B) no unemployment, no inflation, and moderate long term interest rates C) maximum employment, stable prices, and moderate long term interest rates D) maximum employment and no inflation 2) The Federal Reserve is charged with achieving these goals by A) choosing between maximum employment and stable prices in the long run. B) keeping interest rates as low as possible. C) keeping the growth rate of money and loans consistent with the growth rate of potential GDP. D) keeping the monetary base stable with little or no growth.arrow_forwardBetween 1950 and 1975, the average annual rate of change in the money supply was slightly less than 4 percent. Has the Fed expanded the money supply more (or less) rapidly than this 4 percent long-term rate during the past 12 months? The past 24 months? Is the Fed's current monetary policy restrictive or expansionary? Explain.arrow_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