EBK ECONOMICS TODAY
18th Edition
ISBN: 9780133920116
Author: Miller
Publisher: YUZU
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Chapter 17, Problem 1FCT
To determine
Difficulties faced by Fed.
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the amount of inflation caused by expansionary monetary policy depends on the slope of the supply curve. true
false
Which of the following is NOT an example of monetary policy to restrict aggregate demand?
a)Raising interest rates
b)Reducing money supply
c)Rationing credit
d)Increasing income tax
In response to the Great Recession, the Federal Reserve had to take drastic and largely untested measures to stabilize both the financial system and macroeconomy. These measures caused the monetary base to increase from approximately $850 billion to over $4 trillion. Indicate whether each school of macroeconomic thought—classical, Keynesian, monetarist, real business cycle, and secular stagnationist—would support the Fed’s actions.
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- Which of the following is NOT one of the factors in the FED "rule" used to determine if Monetary Policy action is required? other factors like world events that may impact the US economy price level and inflation the marginal propensity to consume (MPC) real GDP and its effect on unemployment ratesarrow_forwardIn March and April 1980, inflation in the United States peaked at 14.6 percent. What did then-Fed chairman Volcker elect to do? What was the impact of his policy?arrow_forwardWhich of the following are reasons why the Fed targets an inflation rate greater than 0%? Inflation enables the labor market to function more smoothly. enables the Fed to more effectively fight recessions. helps avoid the risk of deflation. at 0% keeps the purchasing power of consumers stable.arrow_forward
- Actions by the Fed to fight rising rates of inflation likely will initially: (a) reduce long-term interest rates; (b) expand the size of the Fed’s balance sheet; (c) cause the Treasury Department to issue fewer repurchase agreements; (d) increase short-term interest ratesarrow_forwardConsidering the efforts put forward by the Fed during the last recessionary crisis and prior, are there still any tools available to the Fed to utilize as we move from deflation into an inflationary period?arrow_forwardWith a policy of nominal GDP targeting, if the Fed expected 6% growth in real GDP and wanted an inflation rate of 2%, it would set a target for nominal GDP growth of 8% per year. True Falsearrow_forward
- What policy actions should the Fed take, acting from a Keynesian viewpoint, with inflation and unemployment is inversely related, to move up the Phillips Curve in a recessionary economy and decrease unemployment? increase taxes sell securities in the OMO (Open Market Operations) O buy securities in the Open Market Operations (OMO)arrow_forwardAn economy's aggregate demand curve (the relationship between short-run equilibrium output and inflation) is described by the equation:Y = 15,000 - 12,000π, where π is the inflation rate. Initially, the inflation rate is 2 percent or π = 0.02. Potential output Yp equals 14,640.Note: Keep as much precision as possible during your calculations. Your final answer for inflation should be accurate to at least two decimal places and output should be accurate to the nearest whole number.a) Find inflation and output in short-run equilibrium. Inflation : 0%Output : $0 b) Find inflation and output in long-run equilibrium. Inflation : 0%Output : $0arrow_forwardNow go to FRED and search for PCEPI. This is the price index that receives the most attention from the Federal Reserve in terms of fulfilling the nominal part of their dual mandate. Calculate the most recent rate of inflation (12 months) using PCEPI to the nearest two decimal places and compare to the Fed's implicit target of inflation = 2%. Is inflation too high, too low, or just right (circle your answer)? TPCE Too high Too low Just rightarrow_forward
- Why are inflation expectations so important to modern monetary policy? What are several ways that central banks try to manage inflation expectations?arrow_forwardSuppose the actual federal funds rate is equal to the rate implied by a particular inflation goal. In this situation, the Taylor rule implies thatarrow_forwardDuring times of rising inflation, the Fed will undertake monetary policy or "tight money policy."arrow_forward
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