🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
Economics
1
answer
0
watching
104
views

Unit 6. Monetary Policy: What works? Monetary policy by the US Federal Reserve is important for the US economy. However, economists disagree about several aspects of Federal Reserve decisionmaking powers including the composition of the Federal Reserve committees, Federal Reserve goals, and the actual impact of Federal Reserve policy on the economy. Address the following questions for this week’s assignment: ? Provide a brief (one paragraph) overview of this week’s material. ? Should the Federal Reserve Board focus exclusively on the problem of inflation? ? What other goals are appropriate for Federal Reserve policy? ? What is the appropriate goal for the inflation rate? ? How should the Federal Reserve Board use its policy to achieve its goals? ? How effective is the Federal Reserve monetary policy in achieving its goals? ? Is the composition of the decision-making bodies of the Federal Reserve appropriate for a democracy? For information from the Federal Reserve Board itself, go to the Board of Governors of the Federal Reserve System at: http://www.federalreserve.gov/ The Board of Governors site contains the Fed's Beige Book, Congressional testimony and speeches of Federal Reserve Board members, Federal Open Market Committee (FOMC) information, press releases, current interest rate information, and general information about the Federal Reserve System. A PDF-format version of The Federal Reserve System: Purposes and Functions, a thorough overview of the Federal Reserve System, is available by chapter or as a single document. In addition, the site contains a summary of Federal Reserve regulations. Particularly useful is the publication, “Purposes and Functions of the Federal Reserve System” at: http://www.federalreserve.gov/pf/pf.htm And, “Monetary Policy: An Introduction” http://www.frbsf.org/publications/federalreserve/monetary/index .html Criticism of the Federal Reserve Board comes from both conservatives and liberals sides. For a liberal viewpoint see the Financial Markets Center at: http://www.communityinvestmentnetwork.org/nc/single-news-itemstates/article/financial- markets-center/?tx_ttnews%5BbackPid%5D=326 For a conservative viewpoint, see the Shadow Open Market Committee at: http://shadowfed.org/ Your final product will be a paper that: ? Addresses each of the questions above in total. ? Is APA fortatted. ? The body is to be 2 pages minimum. The requirements for your assignment are: 1. Answer each question fully 2. Define the overall subject of each question. 3. Cite at least four (4) resources from this week’s materials

Watch
1
answer
0
watching
104
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Ritu Kharb
Ritu KharbLv5
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

a) Should the Federal Reserve Board focus exclusively on the problem of inflation?

b) What other goals are appropriate for Federal Reserve policy?


c) What is the appropriate goal for the inflation rate?


d) How effective is Federal Reserve monetary policy in achieving its goals?

6. Fed Sees both unemployment and prices on the rise.

The federal reserve sees worse economic problems ahead. But even so, the Fed may be reluctant to cut interest rates any further than it already has. The Fed lowered its economic growth forecast for the year. At the same time, it raised its projections for inflation and unemployment. The Fed raised its unemployment forecast to between 5.5 percent and 5.7 percent and now expects personal consumption expenditures to rise between 3.1 percent and 3.4 percent in 2008 and expects steeper "core" inflation. In an effort to keep the country from falling into recession and to deal with the credit crisis, the Fed has cut its key federal funds rate seven times since September. This short-term interest rate is now 2 percent, down from 5.25percent at the start of the Fed's easing campaign. Some believe the Fed cuts since last September helped fuel inflation, especially the sharp run-up in oil prices because the rate cuts have led to a weakening of the dollar. Along those lines, the two Fed members who voted against the last rate cut argued during the meeting that the Fed cuts were hurting the economy more than helping it. CNN, May 21, 2008.

a. Explain the intended effect of the Fed cutting the target federal funds rate from 5.25 percent to 2 percent and illustrate your explanation with appropriate graphical analysis.

b. Explain how this monetary policy may have "helped fuel inflation, especially the sharp run-up in oil prices".

c. What is core inflation and why does the Fed tend to focus on that measurement of inflation more heavily than overall inflation?

d. Explain the dilemma that the Fed is facing when making decisions in the face of rising unemployment and rising inflation.

1. The primary tool used by supply-side economists to eliminate macroeconomic problems is

A. the discount rate.

B. corporate tax rates.

C. government spending.

D. open market operations.

E. the reserve requirement.

2. When the Federal Reserve System buys government securities on the open market,

A. the money supply will decrease.

B. excess reserves at commercial banks will decrease.

C. excess reserves at commercial banks will increase.

D. interest rates will increase

3. One of the advantages of automatic stabilizers over discretionary fiscal policy is that automatic stabilizers

A. has a greater multiplier effect than discretionary policy.

B. is not subject to the time lag problems of discretionary policy.

C. does not produce a deficit during recessions as a discretionary policy does.

D. makes the actual budget a better reflection of the condition of the economy than the full-employment budget.

4. "I have promised to do everything in my power to reduce the federal deficit. That means reducing federal expenditures and, if necessary, increasing taxes. Under present conditions of full employment and steady prices, we can afford to bear the burden of this debt (i.e., pay off the debt) now instead of passing it on to our children and grandchildren."

If the policies of the Senator quoted above were adopted, what effects would be expected while these policies were being implemented?

A. higher inflation

B. increases imports

C. higher rates of economic growth

D. increased unemployment and idle capacity

5. An inflationary gap can be reduced or completely closed by

A. decreasing taxes while leaving government spending on goods and services unchanged.

B. decreasing government spending on goods and services while leaving taxes unchanged.

C. increasing government spending on goods and services while leaving taxes unchanged.

D. increasing both government spending on goods and services and taxes by the same amount.

6. Compared to fiscal policy, an advantage of monetary policy is its

A. greater flexibility.

B. highly selective impact on segments of the economy.

C. ability to eliminate cost-push inflation.

D. need for approval by Congress.

E. need for approval by the President.

7. An increase in government spending on goods and services which causes a budget deficit to exist

A. is always inflationary.

B. is more inflationary than equal increases in private spending.

C. is usually not inflationary when the economy is operating at its full-employment level of output.

D. will not necessarily cause serious inflation as long as there are unemployed resources in the economy.

8. Some analysts believe the tax cuts enacted during the President H.W. Bush administration represented a supply-side economic policy rather than a Keynesian fiscal policy because

A. the tax cuts were accompanied by decreases in interest rates.

B. the tax cuts were accompanied by increases in government spending.

C. the tax cuts were primarily aimed at upper-income groups and businesses.

D. the tax cuts were primarily aimed at middle income and lower-income groups.

9. When the federal government is stabilizing the economy by increasing taxes, monetary authorities should

A. take actions to decrease interest rates.

B. increase the supply of money.

C. buy government securities in the open market.

D. follow an expansionary money policy.

E. follow a contractionary money policy.

10. Suppose a commercial bank has demand deposits (checking accounts) of $400,000, actual reserves of $170,000, and a reserve requirement of 20%. This single commercial bank can lend a maximum of ______ and the banking system can increase loans by a maximum of ______

A. $90,000 and $450,000.
B. $90,000 and $360,000.
C. $90,000 and $170,000.
D. $170,000 and $450,000.

E. both can lend an unlimited amount.

11. Which of the following would most likely result if the federal government increased its spending without changing tax revenues during a period of full employment?

A. inflation

B. a recession

C. lower interest rates

D. a larger net exports deficit

12. Fiscal policy that emphasizes cutting taxes as a means of improving incentives to work, and invest would be characterized in aggregate demand - aggregate supply framework primarily a shift

A. left in the aggregate demand curve.

B. left in the aggregate supply curve.

C. right in the aggregate supply curve.

D. no shift in either the aggregate demand curve or the aggregate supply curve.

13. Which of the following will result in the greatest increase in aggregate expenditures/demand?

A. A $100 decrease in personal income taxes

B. A $100 increase in personal income taxes

C. A $100 increase in government expenditures

D. A $100 increase in government expenditures which is accompanied by a $100 increase in personal income taxes

E. Both A and C will have the same effect on aggregate expenditures

14. You are given the following information about aggregate demand for an economy: (1)consumption = $600 billion; (2) investment = $50 billion; (3) government purchases = $100 billion; and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $720 billion, then what combination of actions would be most consistent to achieve full employment and stable prices?

A. an increase in government spending and taxes

B. decrease government spending and taxes

C. decrease government spending and increase taxes

D. increase government spending and decrease taxes

15. Advocates of fiscal policy agree that discretionary fiscal policy will stabilize the business cycle most when the federal government

A. continuously incurs budget deficits.

B. continuously runs budget surpluses.

C. balances its budget every year.

D. incurs budget deficits during recessions and budget surpluses during demand-pull inflations.

E. incurs budget surpluses during recessions and budget deficits during demand-pull inflations.

16. Discretionary fiscal policy that increases the government budget deficit has the same effect on equilibrium as

A. an increase in personal saving.

B. an increase in business investment.

C. a decrease in government spending.

D. a decrease in personal consumption expenditures

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in