Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 16, Problem 3CQQ
To determine
Role of interest rate targets in Fed policy.
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When the Fed buys bonds (or bond options) on a larger scale (than before) from private banks, ceteris paribus
Group of answer choices
A) the money supply tends not to change.
B) it tends to cause deflation.
C) the money supply tends to decrease.
D) aggregate demand tends to shift left.
E) the money supply tends to increase.
The Chairman or Chairlady or Fed Chair (a politically correct term) of the Federal Reserve Bank has the power to override the votes of the FOMC and can independently carry out the monetary policy that they want as an individual. The FOMC is merely an advisory board to the Fed Chair. The FOMC has no real power, it's the Fed Chair (currently Jerome Powell) who has 100 percent of the power over U.S. monetary policy.
If the Fed increases the money supply, in the short run interest rates will ________ and investment spending will __________.
Rise; go down
Decline; go down
Rise; increase
Decline; increase
Chapter 16 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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- When the Fed sells government securities (bonds), the money supply will ______ . a. first increase and then decrease b. first decrease and then increase c. increase d. decreasearrow_forwardIf the fed buys bonds, price levels will: A. Increase B. Decrease C. No changearrow_forwardWhen the Central Bank increases the money supply, interest rates fall and consumers spend more. Select one: True Falsearrow_forward
- When the Fed lowers the federal funds rate target and buys bonds, what happens to short-term interest rates and the monetary base? A. short-term interest rates fall; the monetary base increases B. short-term interest rates fall; the monetary base decreases C. short-term interest rates rise; the monetary base increases D. short-term interest rates rise; the monetary base decreasesarrow_forwardThe Fed can make it cheaper for banks to borrow from the___ by lowering the discount rate. A)central bank B)excess reserve C)monetary base D)New York Fedarrow_forwardFill in the blanks The tools that the Fed uses to influence the economy are (blank) , (blank) , and (blank) .arrow_forward
- f the Fed wants to raise interest rates, then it can use its open market operations to: Group of answer choices decrease the money supply. increase the money supply. increase money demand. decrease money demand.arrow_forwardOther than using the Open Market Committee, identify at least 2 ways in which the Fed can decrease the money supply. I am looking for the method and what bet decrease the money supply For the the press ACT PC or ALTarrow_forward(c) Monetory policy authorities will respond to the change in price level that occurred in part (b). How might the central bank respond to the change you described in part (b)? (d) Draw a correctly labeled graph of the money market. a. Label the equilibrium interest rate. b. Show on your graph the change in money supply that will occur due to the monetary policy described in part (c). c. Show on your graph the change in interest rates that will occur due to the monetary policy described in part (c). (e) At the same time, assume that policymakers at the Bank of England enforce an expansionary monetary policy.arrow_forward
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