Pearson eText Economics -- Instant Access (Pearson+)
13th Edition
ISBN: 9780136879459
Author: Michael Parkin
Publisher: PEARSON+
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 31, Problem 39APA
(a)
To determine
Explain the QE3 asset purchases.
(b)
To determine
Determine how the asset purchases damage the Fed’s credibility.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
4.
July 2020, an article on reuters.com noted that: "The Fed's total balance
sheet size rose.... It was largely due to continued purchase of Treasuries and mortgage-
backed securities aimed at keeping financial market conditions easy."
(a)
Why would the Fed's buying Treasury securities and mortgage-backed
securities cause the Fed's balance sheet to rise?
4. The hypothetical information in the following table shows what the values for real GDP
and the price level will be in 2017 if the Fed does not use monetary policy.
Year
Potential GDP
Real GDP
Price level
2016
$17.7 trillion
$17.7 trillion
114
2017
18.1 trillion
17.9 trillion
116
If the Fed wants to keep real GDP at its potential level in 2017, should it use an
expansionary policy or a contractionary policy? Briefly explain your answer.
b. Suppose the Fed's policy is successful in keeping real GDP at its potential level in
2017. State whether each of the following will be higher of lower than if the Fed had
taken no action.
а.
I.
Real GDP
II.
Potential GDP
III.
The inflation rate
IV.
The Unemployment rate
c. Draw an AD and AS graph to illustrate your answer. Be sure your graph contains
LRAS , SRAS, and AD curves for 2016 and 2017, with and without monetary policy
action.
What was the actual federal funds rate set by the Fed in 2021? Was monetary policy expansionary or contractionary? Briefly explain.
Chapter 31 Solutions
Pearson eText Economics -- Instant Access (Pearson+)
Ch. 31.1 - Prob. 1RQCh. 31.1 - Prob. 2RQCh. 31.1 - Prob. 3RQCh. 31.1 - Prob. 4RQCh. 31.2 - Prob. 1RQCh. 31.2 - Prob. 2RQCh. 31.2 - Prob. 3RQCh. 31.3 - Prob. 1RQCh. 31.3 - Prob. 2RQCh. 31.3 - Prob. 3RQ
Ch. 31.3 - Prob. 4RQCh. 31.4 - Prob. 1RQCh. 31.4 - Prob. 2RQCh. 31.4 - Prob. 3RQCh. 31.4 - Prob. 4RQCh. 31.4 - Prob. 5RQCh. 31 - Prob. 1SPACh. 31 - Prob. 2SPACh. 31 - Prob. 3SPACh. 31 - Prob. 4SPACh. 31 - Prob. 5SPACh. 31 - Prob. 6SPACh. 31 - Prob. 7SPACh. 31 - Prob. 8SPACh. 31 - Prob. 9SPACh. 31 - Prob. 10SPACh. 31 - Prob. 11SPACh. 31 - Prob. 12SPACh. 31 - Prob. 13SPACh. 31 - Prob. 14SPACh. 31 - Prob. 15SPACh. 31 - Prob. 16APACh. 31 - Prob. 17APACh. 31 - Prob. 18APACh. 31 - Prob. 19APACh. 31 - Prob. 20APACh. 31 - Prob. 21APACh. 31 - Prob. 22APACh. 31 - Prob. 23APACh. 31 - Prob. 24APACh. 31 - Prob. 25APACh. 31 - Prob. 26APACh. 31 - Prob. 27APACh. 31 - Prob. 28APACh. 31 - Prob. 29APACh. 31 - Prob. 30APACh. 31 - Prob. 31APACh. 31 - Prob. 32APACh. 31 - Prob. 33APACh. 31 - Prob. 34APACh. 31 - Prob. 35APACh. 31 - Prob. 36APACh. 31 - Prob. 37APACh. 31 - Prob. 38APACh. 31 - Prob. 39APACh. 31 - Prob. 40APACh. 31 - Prob. 41APA
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- "Fed Chair Jerome Powell said he supports a traditional quarter-point increase in the Federal Reserve's benchmark short-term interest rate when the Fed meets later this month, rather than a larger increase that some of its policymakers have proposed." - ABC News, March 2, 2022 If the Federal Reserve increases the Federal Funds Rate this month, then which of the following is likely to happen in the US economy? Money supply will decrease and aggregate demand will decrease Money supply will increase and aggregate demand will increase Money supply will decrease and aggregate demand will increase Money supply will increase and aggregate demand will decreasearrow_forwardHelicopter Money Primer: The possible next frontier in quantitative easing Central banks—the Fed, the Bank of Japan, the European Central bank, the People's Bank of China, and others—have bought trillions of dollars of bonds. The Fed alone has bought $4 trillion-worth. Source: Daily FX, July 15, 2016 What are the Fed's policy tools and which policy tool did the Fed use to increase its assets to $4 trillion? The Fed's policy tools include ______. A. the required reserve ratio, discount rate, and government expenditure B. extraordinary crisis measures, marginal tax rates, and the discount rate C. the required reserve ratio, discount rate, and open market operations D. open market operations, marginal tax rates, and government expenditure To increase its assets to $4 trillion, the Fed used _______. A. a printing press to print more currency B. required reserve ratios C. the discount rate…arrow_forward3. "Inflation is much too high and we understand the hardship it is causing. We're moving expeditiously to bring it back down," Fed Chairman Jerome Powell said during a news conference. (Source: CNBC.com) Given the above statement, suggest a policy which can be implemented by the Fed to address the inflationary pressure. Assume that the Fed were to adopt required reserve ratio, using AD-AS model, explain the outcomes of this move on the economy in the short run. (You may exclude LRAS curve in your model)arrow_forward
- 6.Fed is split over time of rate rise In October 2009, the Fed was forecasting that unemployment will average 9.8 percent in 2010 and said the federal funds rate will remain "exceptionally low" for "an extended period." But some officials were beginning to worry about unwinding the $2 trillion in special credits that have boosted the monetary base and to wonder if the interest rate might need to start rising soon. Source: The New York Times, October 9, 2009 Describe the time lags in the operation of monetary policy and explain why they pose a challenge for the Fed in deciding when to start raising the federal funds rate target in a recession. The time lag between the implementation of monetary policy and the resulting change in the inflation rate is approximately This poses a challenge for the Fed in deciding when to start raising the federal funds rate target in a recession because. А. 1 year; if the Fed raises the federal funds rate too soon, it could lengthen the recession В. a few…arrow_forwardIn July 2020, an article on reuters.com noted that: “The Fed’s total balance sheet size rose .... It was largely due to continued purchases of Treasuries and mortgage-backed securities aimed at keeping financial market conditions easy.” Why would the Fed’s buying Treasury securities and mortgage-backed securities keep “financial market conditions easy”? Why would these asset purchases cause the Fed’s balance sheet to rise? Did the Fed’s asset purchases also cause the monetary base to rise? Explain based on the graph in Question 2.arrow_forwardTable 15-4 Year 2022 2023 Potential Real GDP $18.1 trillion 18.4 trillion Real GDP $18.1 trillion 18.3 trillion Price Level Use the editor to format your answer 150 153 Refer to Table 15-4. Suppose the following table illustrates the values of real and potential GDP and the price level if the Fed does not vote to change their current policy to be more contractionary or expansionary. If the Fed wants to keep real GDP at its potential level in 2023, should the Fed use a contractionary or expansionary policy? How should it conduct open market operations to achieve its goal?arrow_forward
- What is the FED's decision-making strategy regarding the assessment of state of economy? (explain about each of the three variables used by FED in a separate paragraph) What happens when the Fed lowers the federal funds rate by buying securities in an open market? Show step by step how the FED fights inflation by using your graphs. How does the FED adjust the quantity of monetary base by using open market operations?arrow_forwardSuppose the Federal Reserve shifts to an expansionary monetary policy by buying bonds through open-market operations. This problem will work through the short-run effects of this move according to the Keynesian transmission mechanism. The following graph shows the money demand and money supply curves. As a result of the Fed's policy, the Interest rate to Adjust the following graph to show the effect of the Fed's expansionary monetary policy. 200 1500 INTEREST RATEarrow_forwardAccording to John Maynard Keynes, Answer the demand for money in a country is determined entirely by that nation’s central bank. the supply of money in a country is determined by the overall wealth of the citizens of that country. the interest rate adjusts to balance the supply of, and demand for, money. the interest rate adjusts to balance the supply of, and demand for, goods and services. Question 34 While a television news reporter might state that “Today the Fed lowered the federal funds rate from 5.5 percent to 5.25 percent,” a more precise account of the Fed’s action would be as follows: Answer “Today the Fed told its bond traders to conduct open-market operations in such a way that the equilibrium federal funds rate would decrease to 5.25 percent.” “Today the Fed lowered the discount rate by a quarter of a percentage point, and this action will force the federal funds rate to drop by the same amount.” “Today the Fed took steps to decrease the money supply by an amount that is…arrow_forward
- The Monetary Policy (Chapter 15) 1.1 Does the money demand curve have a positive slope or a negative slope? Why does it have this slope? Explain why an increase in the variable on the vertical axis of the money demand curve causes either an increase or a decrease in the variable on the horizontal axis of the money demand curve.arrow_forwardEconomics 8. The Taylor Rule and inflation Suppose the initial inflation rate and inflation target are both 2%, that the real federal funds rate is 2%, and that the economy is at the full employment level of output. According the Taylor Rule, the federal funds target should be Suppose now that the inflation rate changes to 4%. The Taylor Rule now prescribes that the federal funds target should be Next, suppose that economists predict that the economy would be at full employment at a level of $18.50 trillion. However, the actual GDP in the United States is $17 trillion. Assuming that the inflation rate is still 4%, the Taylor Rule prescribes that the federal funds target should be Based on the Taylor Rule, the Fed's target for the fed funds rate can never be negative. O True O Falsearrow_forwardIn the Financial Times article, “Fed signals no rate rise until at least 2024 despite growth upgrade” (17 March 2021), we can read: “Federal Reserve officials signalled that they expect to keep interest rates close to zero until at least 2024, even as they sharply upgraded their US growth forecasts because of a massive fiscal stimulus and an accelerating vaccine rollout. [...] The upgrades to the forecasts from Fed officials were significant: whereas in December they predicted 4.2 percent growth this year, that estimate was bumped up to 6.5 percent, which would be the fastest economic expansion since 1984. Meanwhile, the unemployment rate is now forecast to fall to 4.5 percent by the end of the year instead of 5 percent. [...] inflation [...], is expected to rise to 2.2 percent and above the central bank’s 2 percent target, compared with the smaller rise to 1.8 percent predicted in December. [...] The Fed has pledged to maintain rock-bottom interest rates until the US reaches full…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
- Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage LearningEssentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Economics (MindTap Course List)
Economics
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning