Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 34, Problem 3QCMC
To determine
Role of interest rate targets in Fed policy.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
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
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…
Chapter 34 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
Knowledge Booster
Similar questions
- (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_forwardIf 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_forward
- 1) 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_forwardFor 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_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
- After the Federal Reserve buys bonds, the interest rate changes and aggregate expenditures change, the following will most likely occur a the price level in the economy will fall and money demand will decrease b the price level in the economy will rise and the money demand will decrease c the price level in the economy will fall and money demand will increase d the price level in the economy will rise and the money demand will increasearrow_forwardThe fed keeps an eye on the national economy. True or falsearrow_forwardApplied Problems on Monetary Policy and Interest Rates 1. For each of the following questions, draw the Money Demand curve (MD) and Money Supply curve (MS) and label the equilibrium interest rate as i*. Also show how the MS- MD graph changes due to the given events and as a result how the equilibrium interest rate changes. (In your answer you should clearly state and show what happens to the MS and MD curves and also what happens to the interest rate).arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics Today and Tomorrow, Student EditionEconomicsISBN:9780078747663Author:McGraw-HillPublisher:Glencoe/McGraw-Hill School Pub Co
Economics Today and Tomorrow, Student Edition
Economics
ISBN:9780078747663
Author:McGraw-Hill
Publisher:Glencoe/McGraw-Hill School Pub Co