EBK FOUNDATIONS OF ECONOMICS
8th Edition
ISBN: 9780134516196
Author: BADE
Publisher: PEARSON CO
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Chapter 33, Problem 2MCQ
To determine
To identify:
The option that correctly states the operational goals of Federal Reserve.
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Students have asked these similar questions
The Fed's mandated goals are "maximum employment, stable prices, and moderate long-term interest rates."
Explain the harmony among these goals in the long run.
In the long run, ________.
A.
increases in monetary aggregates create a positive output gap and price stability, maximum employment, and close-to-zero nominal interest rates
B.
low nominal interest rates bring maximum employment, stable prices, and eliminate structural unemployment
C.
price stability brings maximum sustainable potential GDP growth, maximum employment, and a nominal interest rate close to the real interest rate
D.
price stability brings maximum sustainable potential GDP growth, unemployment below the natural rate, and nominal interest rates that rise slowly
7)According to the Taylor rule, if inflation has risen by 4 percentage points above its target of 2 percent, the Fed should
Group of answer choices
grow the money supply at a rate of 6 percent per year.
raise the real federal funds rate by 2 percentage points.
raise the real federal funds rate by 3 percentage points.
raise the real federal funds rate by 6 percentage points.
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 rates
Chapter 33 Solutions
EBK FOUNDATIONS OF ECONOMICS
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
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- Volatility in the growth rate of real GDP subsided in the 40 years after 1980. One key reason for the relative decline in volatility is that: (a) the Fed became more adapt at keeping the inflation rate stable; (b) the Fed continuously implemented aggressive monetary easing; (c) the Fed continuously implemented monetary tightening; (d) the value of the U.S. dollar in foreign exchange markets rose persistently.arrow_forwardHow did the Fed's monetary policy change during the Great Recession? During the Great Recession, the Fed _______. A. conducted daily open market operations to hit the federal funds rate target B. engaged in quantitative tightening C. conducted monetary policy with limited reserves D. conducted monetary policy with ample reservesarrow_forwardThe Fed’s bond holdings increased from $900 billion in 2009 to $4.5 Trillion in 2016. The purpose of the Fed’s decision to increase its bond holdings from 2009 to 2016 was to A. to decrease the reserves in the banking system thus engaging in so called “contractionary monetary policy” needed to contract the level of inflation B. contract the money supply to counteract the high rates of unemployment then existing in the United States C. increase the reserves in the banking system to increase bank lending and aggregate demand. D. engage in expansionary fiscal policyarrow_forward
- What short-run tradeoff does the Fed face when it tries to achieve its dual mandate? The Fed faces a tradeoff between A. the money growth rate and real GDP growth rate B. the inflation rate and unemployment rate C. keeping prices stable and moderating interest rates D. changing tax revenues and balancing the government’s budgetarrow_forwardContractionary Monetary Policy Assume that the economy is currently in short run equilibrium but experiencing an inflationary gap. Graphically illustrate the problem Identify the combination of monetary policies that the Federal Reserve would pursue to correct problem Graphically illustrate and explain how these monetary policies affect (1) the Market for Reserves, (2) the Market for M1, and (3) the Market for Real Goods and Services (AD-AS) Make sure that you identify the Fed’s goals/objectives and also graphically illustrate the solution.arrow_forwardExplain the most recent monetary policy move by the Federal Reserve (the FED). Determine whether this policy is expansionary or contractionary and elaborate on the reasons behind the Fed's decision. Analyze the observed impacts of this policy. For best results and up-to-date information, refer to recent announcements made by the Federal Open Market Committee (FOMC).arrow_forward
- The federal funds rate is: A) set by Congress. B) determined in the money market by the supply of and demand for money. C) determined in the real market by the aggregate supply and aggregate demand curves. D) the interest rate that banks pay when they borrow directly from the Fed.arrow_forwardWhat trade offs does the Fed face, particularly in the short run in attempting to reach its goals? 1. In attempting to reach high employment, the Fed would pursue expansionary monetary policy, but this policy could cause lower economic growth 2. In attempting to reach high economic growth, the Fed would pursue contractionary monetary policy but this policy could cause higher unemployment 3. In attempting to reach high econmic growh or high employment, the Fed would pursue expansionary monetary policy, but this policy could cause higher inflation 4. In attempting to reach high economic growth, the Fed would pursue expansionary monetary policy, but this policy could cause higher unemploymentarrow_forwardQUESTION 7 What are the two components of the Fed's dual mandate? A. Interest rate stability and foreign exchange stability B. Price stability and output stability C. Output stability and financial market stability D. Price stability and interest rate stabilityarrow_forward
- Like many other investors you are a “Fed Watcher” who constantly monitors any actions taken by the Fed to revise monetary policy. You believe that 3 key factors affect interest rates. Assume that the most important factor is the Fed’s monetary policy. The second most important factor is the state of the economy, which influences the demand for loanable funds. The third factor is the level of inflation, which also influences the demand for loanable funds. Because monetary policy can affect interests, it affects economic growth as well. By controlling monetary policy, the fed influences the prices of all types of securities. The following information is available to you: Economic growth has been consistently strong over the past few years but is beginning to slow down. Unemployment is as low as it has been in the past decade, but it has risen slightly over the past two quarters. Inflation has been about 5 percent annually for the past few years The dollar has been strong Oil…arrow_forwardWhat are the Fed's monetary policy instruments, and what influences the level at which the Fed sets them? The Fed's monetary policy instruments are _______. A. the core inflation rate and the quantity of money B. the quantity of money and the quantity of bank reserves C. the quantity of bank reserves and three interest rates D. the monetary base and the core inflation rate Thanks!arrow_forward
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