Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 24, Problem 3CQQ
To determine
Role of interest rate targets in Fed policy.
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Suppose that the Bank of Canada determines that the Canadian economy is currently overproducing. What can the Central Bank do to slow down economic activity?
a. The Central bank can pursue an expansionary monetary policy by increasing the money supply, causing a decrease in the interest rate. As a result, real GDP will increase and the price level will increase.
b. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing a decrease in the interest rate. As a result, real GDP will decrease and the price level will decrease
c. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will decrease.
d. The Central bank can pursue a contractionary monetary policy by decreasing the money supply, causing an increase in the interest rate. As a result, real GDP will decrease and the price level will increase
e. The…
When the Fed targets the amount of money in the economy, interest rates
become more variable.
True
False
Monetary Policy - End of Chapter Problems
Ther Fed creates a lower and upper bound for the federal funds rate and the incentives that drive financial institutions to move
the federal funds market to that target.
a. Select the tool(s) the Fed uses to incentivize financial institutions to move the federal funds market to the targeted federal
funds rate.
The Fed
buys and sells government bonds.
borrows money overnight from financial institutions.
Incorrect
b. Select the tool(s) the Fed uses to create a lower bound for the federal funds rate.
The Fed
borrows money overnight from financial institutions.
lends directly to banks through the discount window.
Incorrect
pays banks interest on excess reserves.
lends directly to banks through the discount window.
The Fed
c. Select the tool(s) the Fed uses to create an upper bound for the federal funds rate.
pays banks interest on excess reserves.
lends directly to banks through the discount window.
pays banks interest on excess reserves.
borrows…
Chapter 24 Solutions
Essentials of Economics (MindTap Course List)
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Similar questions
- (a) The Federal Reserve Bank of the United States (i.e., the Fed) is responsible for financing the operations of the federal government. True or false? Explain. (b) Changes in reserve requirements are an effective monetary policy tool that the Fed uses frequently to control the money supply. True or false? Explain.arrow_forwardRead the event The Federal Reserve raises reserve requirements. What would likely result from this event? A. An economy would see a slight decrease in aggregate demand. B. Interest rates on loans decline. C. Consumer demand would increase thus increasing prices. D. Inflation would reach levels that are acceptable for full employment.arrow_forwardIf the Fed sells bonds, which of the following should increase? Select all that apply. The interest rate. The price level. OM1. The monetary base. Investment. GDP.arrow_forward
- Economics If the Fed increases the monetary base by $73 million and the money multiplier is 1.6, money supply will increase by $______ million.arrow_forwardWhen the Fed buys government bonds, a- the money supply decreases and the federal funds rate increases. b- the money supply decreases and the federal funds rate decreases. c- the money supply increases and the federal funds rate decreases. d- the money supply increases and the federal funds rate increases.arrow_forwardFor the January 2020 Press Release, answer the following question.A. For Column 8, complete the range of the Federal Funds Target AND the % change from the previous release.B. For Column 9, decide whether the Fed is buying or selling loans and whether they have increased or decreasedthe amount.arrow_forward
- The Fed typically increases the money supply by selling government bonds buying government loans selling government loans printing more currency buying government bondsarrow_forwardWhen economists speak of the "zero lower bound problem" that the Fed sometimes faces, what are they referring to? 1. It is when short term interest rates are close to zero meaning the Fed can no longer use changes in interest rates to stimulate the economy 2. It is when economic growth in the economy has reached zero percent and the Fed must use aggressive monetary policy 3. It is when the Fed has sold all the securities on its balance sheet and can no longer impact the money supply using open market operations 4. It is when banks choose to hold no excess reserves, making it impossible for the Fed to lower the discount ratearrow_forwardWhich one of these policies should the Fed engage in if unemployment is very high and inflation is under control? Select one: a. Buy government bonds through an Open Market Operation b. Print more money and give it directly to tax payers c. Lower corporate and income taxes d. Raise the discount rate e. Lower consumer confidencearrow_forward
- When the Fed conducts an open market sale, it leads to a higher level of investment and output in the economy. True False Click to select your answer.arrow_forwardIf the Fed wants to increase the money supply it will buy bonds. True Falsearrow_forwardQuestion 5 Since the early 1990s, the Fed has conducted monetary policy by setting a target for the federal funds rate. monetary base. level of borrowed reserves.arrow_forward
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