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- If the money supply increases, and the price level is unchanged, interest rates will fall. True or falseWhen the Fed targets the amount of money in the economy, interest rates become more variable. True Falseif the current unemployment rate exceeds the natural rate the fed should increase the federal fund rate true or false
- If the Fed indicates that inflation is likely to be a concern in the near future, the public would expect that it might Lower interest rates at its next meeting Not change interest rates at its next meeting Raise interest rates at its next meeting Lower interest rates before its next meeting Decrease the federal budget deficit at its next meetingAfter a series of measures to remedy the mortgage crisis that has beset the US economy, Ben Bernanke, chairman of the Board of Governors of the Federal Reserve and his colleagues are once again looking at cutting the central banks key interest rate as they hope that lowering the interest rates will give the economy a boost by encouraging investors and consumers to borrow and spend (Associated Press, n. pag.). The Fed is looking at slashing the interest rate by a full percent however, many economist believe that this is not the appropriate remedy for economic conundrum (Gavin, n. pag). According to many analysts, the issue of the economy regarding the mortgage is the lack of confidence by both the lender and the borrower. Even as the Fed resorts to drastic interest cuts, the first time the central bank has cut a full percentage point in one shot since 1982, this provides little help if lenders are not loaning money out of fear they will not be repaid and the borrowers…If the Fed has announced that it plans on increasing the interest rate it will
- TRUE FALSE The more the Fed accommodates shocks to money demand, the larger the (government) spending multiplier.Assume that the Fed's goal is to stabilize national income. Under what conditions would a money supply target be more desirable than an interest rate target?If bondholders expect the Fed to raise interest rates, what action might they take? How would this affect the Fed’s goal?
- During times of rising inflation, the Fed will undertake monetary policy or "tight money policy."If the actual inflation rate is greater than the target inflation rate, then relative to the neutral interest rate, the Federal Reserve will the real interest rate to drive consumption and investment.2. The theory of liquidity preference and the downward-slopingaggregate demand curve The following graph shows the money market in a hypothetical economy. The central bank in this economy is called the Fed. Assume that the Fed fixes the quantity of money supplied. Suppose the price level decreases from 90 to 75. Shift the appropriate curve on the graph to show the impact of a decrease in the overall price level on the market for money. 12 Money Supply 10 Money Demand Money Supply MD1 2 MD2 10 20 30 40 50 60 MONEY (Billions of dollars) INTEREST RATE (Percent)