Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 12, Problem 4QQ
To determine
The action of Fed to stabilize the aggregate
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Students have asked these similar questions
a) Explain what happens to Money Demand when each of the following occurs:
i, incomes rise;
ii. the interest rate rises.
b. Use the money market to explain why the aggregate demand curve slopes downward.
If the Fed increases the money supply, in the short run interest rates will ________ and investment spending will __________.
Rise; go down
Decline; go down
Rise; increase
Decline; increase
35)Why is the 1982 recession called a textbook recession?
Select one:
a. The textbooks say inflation was not a problem in 1982 and Paul Volcker made a mistake by causing a recession
b. The textbooks say that if inflation is too high then the Fed has to raise the interest rate to curb spending
c. The textbooks say that if inflation is too high then the Fed must lower the interest rate to curb (decrease) spending
d. The textbooks say that if inflation is too high then the Fed must do nothing
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Similar questions
- The U.S. economy is at full employment when the Fed increases the quantity of money, and all other things remain the same. Explain the effect of the Fed's action on aggregate demand in the short run. An increase in the quantity of money. A. increases aggregate demand B. decreases aggregate demand C. decreases the quantity of real GDP demanded but aggregate demand does not change D. increases the quantity of real GDP demanded but aggregate demand does not changearrow_forward.arrow_forwardThe economy's unemployment rate is 2% and the inflation rate is 18%. The most appropriate policy for the Governor of the New York Fed to pursue would be: a. do nothing because the unemployment rate is too low.b. increase the money supply to try to reduce the unemployment rate. c. increase the money supply to try and increase the unemployment rate. d. none of the other responses are correct. e. reduce the money supply to try to reduce the inflation rate.arrow_forward
- In 2004 the Fed began raising interest rates? What is likely to happen to the price level and real GDP as a result? Select one: a. The price level and real GDP will both increase b. The price level and real GDP will both decrease c. The price level will increase, but real GDP will decrease d. The price level will decrease, but real GDP will increase e. Interest rates have no effect on economic growth and inflationarrow_forwardWhen the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right. a.true b.falsearrow_forwardThe Fed’s target for the federal funds ratea. is an extra policy tool for the central bank, inaddition to and independent of the money supply.b. commits the Fed to set a particular money supplyso that it hits the announced target.c. is a goal that is rarely achieved because the Fedcan determine only the money supply.d. matters to banks that borrow and lend federalfunds but does not influence aggregate demand.arrow_forward
- Which of the following describes the chain of events the Central bank uses to fight recession? A. Raise the monetary policy rate target, sell government securities, decrease reserves and loans, increase aggregate demand.B. Raise the monetary policy rate target, buy government securities, increase reserves and loans, decrease aggregate demand.C. Lower the monetary policy rate target, buy government securities, decrease reserves and loans, decrease aggregate demand.D. Lower the monetary policy rate target, buy government securities, increase reserves and loans, increase aggregate demand.arrow_forwardWhat is the tradeoff that the Fed faces in the short run? In the short run, the Fed faces a tradeoff between ________. A. the nominal interest rate and the real interest rate B. monetary aggregates and credit aggregates C. short-term interest rates and long-term interest rates D. inflation and unemploymentarrow_forwardWhen the Fed controls the rate of growth of the money supply to foster macroeconomic stability, this is called: A. Fiscal Policy B. Monetary Policy C. Money Supply Policy D. Fed Policyarrow_forward
- When fighting a recessionary gap, central banks will amount of loans being provided by commercial banks. Select one: a. Increase; decrease b. Decrease; increase the bank rate in order toarrow_forwardWhen the Fed lowers the federal funds rate target and buys bonds, what happens to short-term interest rates and the monetary base? A. short-term interest rates fall; the monetary base increases B. short-term interest rates fall; the monetary base decreases C. short-term interest rates rise; the monetary base increases D. short-term interest rates rise; the monetary base decreasesarrow_forwardIn the short run, ________ in the federal funds rate ________ the price level, and ________ real GDP. a. lowering; increases; decreases b. lowering; increases; does not change c. lowering; increases; increases d. raising; decreases; does not changearrow_forward
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