Interest Rates and Monetary Policy

According to the text, what is the primary determinant of the amount of money demanded for transactions?

What is the relationship between the rate of interest and the amount of money demanded as an asset?

A bond with no expiration date pays a fixed $50 annual interest payment and is currently selling for its face value of $1000. If the interest rate in the economy rises to 7.5 percent, what will be the new price of the bond?

What are the two main assets listed on the consolidated balance sheet of the 12 Federal Reserve Banks as shown in the text?

Which of the following describes the Fed's open-market operations?

What is the effect on commercial bank reserves when the Federal Reserve Banks buy government bonds from commercial banks?

What is the primary effect of lowering the reserve ratio?

The interest rate that Federal Reserve Banks charge on loans they grant to commercial banks is called the:

Which of the Fed's monetary policy tools is described as its most important day-to-day instrument for influencing the money supply?

When the Federal Reserve engages in an expansionary monetary policy, what is its immediate goal regarding the Federal funds rate?

What is the benchmark interest rate used by banks as a reference point for a wide range of loans to businesses and individuals?

According to the Taylor rule as described in the chapter, if real GDP is equal to potential GDP and the inflation rate is 2 percent, what should the nominal Federal funds target rate be?

The cause-effect chain of monetary policy suggests that an increase in the money supply will ultimately lead to what outcome in the aggregate demand-aggregate supply model, assuming the economy is in a recession?

What does the concept of 'cyclical asymmetry' imply about the effectiveness of monetary policy?

What was the Fed's primary response to the economic slowdown and recession that began in late 2000 and continued into 2001?

What innovative monetary policy tool did the Fed introduce in December 2007 in response to the mortgage debt crisis?

Based on the logic of the money market shown in Figure 33.1, if the money supply is increased from $125 billion to $150 billion while the demand for money remains constant, what is the effect on the equilibrium interest rate?

What is the primary reason that a restrictive monetary policy is implemented?

According to the Taylor rule, for each 1 percent that the inflation rate rises above its 2 percent target, how should the Fed adjust the real Federal funds rate?

What are the two key advantages of monetary policy over fiscal policy, as identified in the text?

In the cause-effect chain of an expansionary monetary policy, what is the direct result of a lower interest rate?

If a commercial bank's balance sheet shows actual reserves of $5000 and checkable deposits of $20,000, and the Fed lowers the reserve ratio from 20 percent to 10 percent, what is the change in the bank's excess reserves?

What is the primary reason the Federal Open Market Committee (FOMC) would direct the Federal Reserve Bank of New York to sell government securities?

The 'pushing on a string' analogy is used to illustrate which potential problem with monetary policy?

If the Federal Reserve uses its tools to increase the money supply, what is the expected impact on bond prices?

Suppose a commercial bank has checkable deposits of $20,000 and the reserve ratio is 20 percent. The Fed then raises the reserve ratio to 25 percent. What is the effect on the bank's required and excess reserves, assuming its actual reserves are initially $5000?

The total demand for money curve is derived by:

If the Federal Reserve increases the money supply from $150 billion to $175 billion, and this causes investment spending to rise from $20 billion to $25 billion, what can be concluded about the economy's investment demand curve?

What is the Federal Open Market Committee's (FOMC) role in monetary policy?

If a commercial bank borrows from a Federal Reserve Bank, what happens to its reserves?

If the economy is experiencing an inflationary GDP gap as shown in Figure 33.5d, and the Fed wishes to close it without causing a recession, what is the appropriate action?

Suppose nominal GDP is $450 billion and the average dollar is spent three times per year. If the money demand is in equilibrium with the money supply, what does this imply about the transactions demand for money?

What is the primary reason that a lower discount rate encourages commercial banks to obtain additional reserves?

Between March 2001 and August 2001, by how much did the Fed cut the Federal funds rate?

What are the two main limitations or complications of monetary policy discussed in the text?

In the context of the money market, what would cause the total money demand curve to shift to the right?

How does the term auction facility guarantee that the amount of reserves the Fed wishes to lend will be borrowed?

If an expansionary monetary policy increases investment by $5 billion and the economy's MPC is 0.75, by how much will the aggregate demand curve shift rightward at each price level?

Why do Federal Reserve Board members have long, 14-year staggered terms?

What is the primary liability of the Federal Reserve Banks?

If the Fed buys $1000 worth of bonds from the public and the reserve ratio is 20 percent, what is the initial increase in excess reserves in the banking system?

What is the reason provided in the text for why the prime interest rate is higher than the Federal funds rate?

According to the Taylor rule, for each 1 percent increase of real GDP above potential GDP, how should the Fed adjust the real Federal funds rate?

A restrictive monetary policy that shifts the money supply curve from Sm3 ($175 billion) to a new level of $162.5 billion would, according to the model in Figure 33.5, have what effect on the interest rate?

What is the primary reason that Federal Reserve Banks' purchases of securities from the public increase the lending ability of the commercial banking system?

Which of the Fed's tools of monetary policy was used only sparingly until the mortgage debt crisis, when it was used aggressively to provide liquidity to banks?

Why must the Federal Reserve be careful when implementing a restrictive monetary policy to combat inflation, according to the text?

If the Federal funds rate is 4 percent and the FOMC undertakes a restrictive monetary policy to target a rate of 4.5 percent, what is the effect on the supply of Federal funds?

What is the primary reason for the downward slope of the demand for money curve (Dm)?

Why might a severe recession undermine the effectiveness of an expansionary monetary policy?