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  1. Assume that the Federal Reserve (%u201Cthe Fed%u201D) unexpectedly shifts to restrictive monetary policy. Why would the Fed make such a policy shift? Explain how the Federal Reserve will implement this restrictive monetary and how the effects of this policy will ripple through the economy to impact real output both in the short run(SRAS) and in the long run (LRAS).

  1. Using the Federal Reserve%u2019s report (see link below) on Money Stock Measures for June 7, 2012 determine the growth rate of the Seasonally Adjusted M1 Money Supply between January 2011 and January 2012. State the rate of growth as a percent of January 2011 Seasonally Adjusted M1 Money Supply. Given the state of the economy, should monetary authorities increase or decrease the growth rate of money? Explain why. Link to report: http://www.federalreserve.gov/releases/h6/

  1. Is stability in the general level of prices through time important? Why or why not? Should price stability be the goal of monetary policy? Explain your responses.

  1. What is the Quantity Theory of Money? What are its implications? Does the theory have any shortcomings, if so what are they? Have the predictions of the Quantity of Theory of Money proven accurate?

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Casey Durgan
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18 Apr 2018

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Related questions

Problem Set 5

Complete all questions listed below. Clearly label your answers.

1. What impact will an unanticipated increase in the money supply have on the real interest rate, real output, and employment in the short run? How will expansionary monetary policy affect these factors in the long run? Explain.

2. How rapidly has the money supply (M1) grown during the past twelve months? State the rate of growth (use http://www.federalreserve.gov/releases/h6/) and the most recent release, use the seasonally adjusted figures. Calculate the rate of growth across the year by taking the (new amount of M1- old amount of M1)/old amount of M1). Given the state of the economy, should monetary authorities increase or decrease the growth rate of money? Explain why.

3. Is stability in the general level of prices through time important? Why or why not? Should price stability be the goal of monetary policy? Explain your responses.

4. Compare and contrast the impact of an unexpected shift to a more expansionary monetary policy under rational and adaptive expectations. Are the implications of the two theories different in the short run? Are the long-run implications different? Explain.

6. Other things being​ equal, the M1 money supply varies in the same direction as the magnitude of

A.​k, the​ currency/DDO ratio

B.rr​ , the average required reserve ratio

C.​re, the​ banks’ desired excess reserves ratio

D.none of the above

7. Suppose that discounts and advances​ (Fed loans of reserves to​ banks) increase​ $200 million, Treasury deposits at the Fed increase​ $500 million, and the Fed buys​ $700 million of Treasury bills from dealers. The net effect of these 3 transactions is to

A.increase bank reserves by​ $1,000 million

B.increase bank reserves by​ $1,400 million

C.increase bank reserves by​ $400 billion

D.leave bank reserves unchanged

8. Other things being equal​ (assuming the Fed takes no​ action), a sharp increase in interest rates caused by market forces in a strong economic recovery is likely to

A.increase​ k, the currency​ ratio, thus reducing the money supply

B.reduce the monetary​ base, thus increasing the money supply

C.reduce re​ , the desired excess reserve​ ratio, thus increasing the money supply

D.do none of the above

9. The Federal Reserve is able to control most accurately in the short run

A.​B, the monetary base

B.​k, the currency ratio

C.re​ , the​ bank’s desired excess reserve ratio

D.M1, the U.S. money supply

10. The Federal Reserve implemented​ “operation twist” in​ 2011-2012 by

A.simultaneously buying​ long-term and selling​ short-term Treasury securities

B.heavy purchases of both​ long-term and​ short-term Treasury securities

C.lowering the federal funds rate target and buying​ long-term bonds

D.purchasing​ short-term securities and buying​ mortgage-backed bonds

11. During​ 2008-2014, Fed Chairman Ben Bernanke drew a lot of criticism for

A.maintaining​ short-term interest rates at extremely low levels for an extended period

B.bailing out large banks that would otherwise have failed

C.conducting the quantitative easing policy for about six years

D.all of the above

1. Is opportunity cost always present?


2. What is the problem at the heart of economics?


3. What is included in GDP and what is excluded?


4. If the consumer price index increases, how does this impact the average citizen?


5. What is the business cycle?


6. What is the relationship among the potential output level of the economy, the natural rate of unemployment, cyclical unemployment, structural unemployment, and frictional unemployment?


7. What did Keynesians believe about investment and the adjustment of wage rates?


8. What did pre-Keynesian believe about the market and its ability to pull itself out of a recession?


9. What role do investments in human capital, physical capital, technology development, and improving institutional quality play in creating economic growth?


10. How does a fractional reserve banking system work and what is the relationship between the money multiplier and the reserve requirement?


Wh What is fiscal policy?

12. What are the relations between government spending, the marginal propensity to consume, the marginal propensity to save, and the multiplier effect?

13. What are some of the problems with using fiscal policy in an effective manner?

14. What role did the Great Depression play in changing the government%u2019s approach to the economy?

15. What is stagflation and how did it challenge Keynesian orthodoxy?

16. What is supply side economics and how does it function?

17. What is the crowding out effect?

18. What is the new classical approach to the stimulatory impact of fiscal policy implemented through deficit spending?

19. What role does the department of the Treasury play in the American economy?

20. What role does the Federal Reserve Banking system play in managing the American policy?

21. What are the tools that the Fed uses to influence the money supply?

22. What approach to the money supply do those embracing monetarism suggest?

23. What dangers does monetary policy pose for the economy?

24. How do shifting price levels impact debtors and savers?

25. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a tax cut?

26. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a tax increase?

27. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of an increase in government spending?

28. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of a cut in government spending?

29. Can you use aggregate demand/aggregate supply analysis to understand and explain the impact of an expansionary monetary policy?

30. Can you use aggregate demand/ aggregate supply analysis to understand and explain the impact of a restrictive monetary policy?

31. How do automatic stabilizers influence the economy?

32. How does a deficit and large debt influence the economy?

33. What is the relationship between the expansion of the money supply and inflation?

34. What is the relationship between interest rates and inflation rates?

35. How do expectations impact the effectiveness of monetary policy?

36. What restricts the ability of the Fed to purchase U.S. securities?

37. What is Money?

38. What is the primary motivation of bankers and banks?

39. What is the impact of higher interest rates on the value of a currency and a nation%u2019s net exports?

40. What is the Conference Board and what does it do?

41. Why do countries willing lend the U.S. government money despite the relatively large debt to GDP ratio of the United States?

42. How does trade contribute to growth?

43. How do institutions contribute to growth?

44. How does the relative size of government contribute to growth?

45. What is the Philips Curve?

46. How does the rule of 70 work?

47. Do High Income countries always grow at a faster pace than lesser developed countries?

48. How do high levels of inflation effect growth?

49. Can you identify the amount of growth in an economy by using the percentage change formula?

50. What countries are presently experiencing high rates of economic growth?



12.

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