Question

Monetary policy

3. Think about the loanable funds market. If the Federal Reserve engages in an open market purchase of government, the supply curve ??? and the real interest rate ???.

4. Think about the loanable funds market. If the Federal Reserve engages in an open market sale of government, the supply curve ??? and the real interest rate ??? .

5. When the Federal Reserve engages in an open market sale, this pushes the interest rate ??? and the aggregate demand curve shifts to the ???? .

6. The Federal Reserve is attempting to increase the aggregate demand curve to fight a recession. Which of the following would accomplish their goal? Check all that apply.

		Increase the reserve requirement.
		Decrease the reserve requirement.
		Sell government securities.
		Buy government securities.
		Increase income tax rates
		decrease income tax rates

7. The Federal Reserve is attempting to decrease the aggregate demand curve to fight inflation. Which of the following would accomplish their goal? Check all that apply.

		Increase the reserve requirement.
		Decrease the reserve requirement.
		Sell government securities.
		Buy government securities.
		increase income tax rates
		decrease income tax rates

8. Assume that the bank currently has excess reserves of zero, and the required reserve ratio is 10%.  If the Fed buys $150 million, the amount of new loans that the bank can make initially increases by _______ million. Be exact.

9. If the economy is currently operating at potential GDP, an open market purchase of government securities by the Federal Reserve Board will put upward pressure on prices.

True

False

10. Assume that the bank currently has excess reserves of zero, and the required reserve ratio is 20%.  If the Fed sells $120 million of government securities to JeffCo Bank, the amount of loans that the bank can make decreases initially  by _______ million. Be exact.

11. Use the Taylor Rule to find the federal funds rate (FFR).

Assume that the Fed has a target inflation rate of 2% and a target GDP growth rate of 3%. What FFR should they set if the current inflation rate is 2% and GDP is currently growing at 3%?  

Answer: _____%

12. Use the Taylor Rule to find the federal funds rate (FFR).

Assume that the Fed has a target inflation rate of 2% and a target GDP growth rate of 3%. What FFR should they set if the current inflation rate is 2% and GDP is currently growing at 1%?  

Answer: _____%

13. Use the Taylor Rule to find the federal funds rate (FFR).

Assume that the Fed has a target inflation rate of 2% and a target GDP growth rate of 3%. What FFR should they set if the current inflation rate is 5% and GDP is currently growing at 1%?   This is an example of stagflation where the economy experiences inflation with slow growth.

Answer: _____%

14. When the Fed used quantitative easing to combat the Great Recession, they purchased assets from bank balance sheets. What did the Fed think that banks would do in response? Explain why you believe this outcome would occur.

15. What action did the FOMC take at their last meeting?

Answer 1