Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 33, Problem 5MCQ
To determine
To identify:
The option that correctly states the actions done by Fed to fight the
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When the Fed lowers the federal funds rate, which of the following economic variables responds most rapidly?
other short-term interest rates
consumption expenditure
the supply of loanable funds
the inflation rate
the long-term real interest rate
Maintaining the growth of the money supply at a constant rate is an example of
an inflation targeting rule.
a money targeting rule.
discretionary policy.
a nominal GDP targeting rule.
a money demand rule.
The Fed increases the quantity of money to counteract
inflation.
negative net exports.
a federal budget surplus.
an inflationary gap.
a recessionary gap.
One of the major reasons why the United States exports jet airplanes is because Boeing faces ________ opportunity cost than firms in other nations in the production of such aircraft.
a lower
an unrelated
a nonexistent
an identical
a higher
If the United States imports purses, then the quantity of purses produced in the United States will…
If the Federal Reserve wanted to offset a cyclical downturn in overall expenditures, it should
sell bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level.
buy bonds to decrease the money supply thus increasing the interest rates to decrease business investment and therefore decreasing the overall level of expenditures and decreasing the price level.
sell bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.
buy bonds to increase the money supply thus decreasing the interest rates to increase business investment and therefore increasing the overall level of expenditures and increasing the price level.
When the Fed sells bonds, the amount of money in circulation in the economy_______ . This drives interest rates_________ , which causes businesses to invest________ in capital improvements such as new factories and upgraded equipment. The result is_________ in aggregate demand,________ in the equilibrium price level, and______ in the equilibrium level of real GDP.
Chapter 33 Solutions
Foundations of Economics (8th Edition)
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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- The economy is at full employment, with fairly low levels of unemployment and inflation. What is likely to happen to GDP, unemployment, interest rates, and inflation if: d) the government increases its deficit at the same time that the Fed is reducing the money supply. e) the government increases its surplus at the same time that the Fed is increasing the money supplyarrow_forward5) Suppose a computer virus disables the nation’s automatic teller machines , making withdrawals from bank accounts less convenient .As a result, people want to keep more cash on hand ,increasing the demand for money. a) Assume the Fed does not change the money supply . According to the theory of liquidity preference,what happens to the interest rate? What happens to aggregate demand. b) If instead the Fed wants to stabilize aggregate demand, how should it change the money supply? C) If its want to accomplish this change in the money supply using open-market operations,what should it do?arrow_forwardWhen the value of the dollar falls, the price of assets rise. When the Fed injects money into the banking system increasing the money supply,_______________ the interest rates tend to increase, and stock market tends to rise. the interest rates tend to increase, and stock market tends to fall. the interest rates tend to decrease, and the stock market tends to rise. the interest rates tend to decrease, and the stock market tends to fall.arrow_forward
- The major problem facing the economy is high unemployment and weak economic growth. The inflation rate is low and stable. Therefore, the Federal Reserve decides to pursue a policy to increase the rate of economic growth. Which policy changes by the Fed would tend to offset each other in trying to achieve that objective? selling government securities and raising the discount rate selling government securities and raising the reserve ratio .buying government securities and raising the discount rate buying government securities and lowering the reserve ratioarrow_forwardThe 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_forwardSuppose government spending increases. True or False: The effect on aggregate demand would be larger if the Federal Reserve held the money supply constant in response than if the Fed were committed to maintaining a fixed interest rate. True Falsearrow_forward
- 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; increasearrow_forwardMaximum employment and moderate long-term interest rates are best achieved with price stability. high and variable inflation rates. high real interest rates. high and stable inflation rates. high short-term interest rates. If the Fed sells U.S. government securities to banks, the federal funds rate ________ and banks' reserves ________. falls; increase falls; decrease rises; do not change rises; decrease rises; increase The Fed ________ influence the real interest rate in the short run and ________ influence the real interest rate in the long run. cannot; can cannot; cannot can; can can; cannot might be able to; might be able to In the long run, the real interest rate is determined by the nominal interest rate. the expected inflation rate. saving supply and investment demand. Fed actions. the multiplier effect. If the Fed raises the federal funds rate, in the short run the interest rate falls. exports increase and imports…arrow_forwardSuppose a computer virus disables the nation's automatic teller machines, making withdrawals from bank accounts less convenient. As a result, people want to keep more cash on hand, increasing the demand for money. Assume the Fed does not change the money supply. According to the theory of liquidity preference, the interest rate willfall , which causes aggregate demand torise .arrow_forward
- ♫ The following graph represents the money market in a hypothetical economy. As in the United States, this economy has a central bank called the Fed, but unlike in the United States, the economy is closed (that is, the economy does not interact with other economies in the world). The money market is currently in equilibrium at an interest rate of 5% and a quantity of money equal to $0.4 trillion, as indicated by the grey star. INTEREST RATE (Percent) 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 0 Money Demand 0.1 Money Supply 0.2 0.3 04 0.5 MONEY (Trillions of dollars) 0.6 0.7 0.8 14 New MS Curve + New Equilibrium Suppose the Fed announces that it is lowering its target interest rate by 25 basis points, or 0.25 percentage point. To do this, the Fed will use open- market operations to money by the public. thearrow_forward7)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.arrow_forwardQUESTION 3 In the table below, indicate the short-run effects of an open market purchase of Treasury Bills by the Federal Reserve on the money supply, the interest rate, short-run equilibrium GDP and the position of the Money Demand, Aggregate Demand, and Short-Run Aggregate Supply curves. You will be placing an “x" in the appropriate column in each of the rows numbered 1 through 6. (Note: each numbered row should have 1 and only 1 column marked with an “x".)_ Increase Decrease Stay the same 1 Money supply 2. Interest rate 3. Short-run equilibrium real GDP Shift Right Shift Left Stay the same Money Demand curve Aggregate Demand curve Short-Run Aggregate Supply curve 4. 5. 6.arrow_forward
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