Monetary Policy - iti" !. Monetary Policy Monetary policy...

This preview shows page 1 - 3 out of 8 pages.

The preview shows page 1 - 3 out of 8 pages.
i-ti"!.Monetary PolicyMonetary policy is the action of the Federal Reserve (the Fed) to prevent or address extremeeconomic fluctuations. The Fed uses its monetary policy tools to influence equilibrium interest ratesin the money market through its control of bank reserves. The Fed lowers interest rates throughexpansionary monetary policy to prevent or addTÿss recessions, and it raises interest rates throughcontractionary monetary policy to prevent or address inflation. Monetary policy is transmitted tothe economy through changes in aggregate demand. Monetary polio7 vfill have both short-run andlong-run effects in the economy. In the fol!owing figures, long-run aggregate supply, short-runaggregate supply, and demand curves are represented by LRAS, SRAS, and AD.?"{:ii"iÿ..!i.i'.Iÿ!I].:?Figure 4-7.1Effects of Monetary PoLicy in the Economy (Recession)£RA£REAL GDP1. Suppose that initially the economy is at the intersection of AD and SPAS in Figure 4-7.1.(A) ÿNat monetary policy can the Fed implement to move the economy to full-employment?.I;2'I' .'..i,!• i."(B) If the Fed is going to use open market operations, it should (buy / sell) Treasury securities.(C) The effect will (increase / decrease) Treasury security (bond) prices.
(D) In the short run, what is the effect on nominal interest rates? Explain.t'/(E) In the short run, what happens to real output? Shift the curve on the graph to show how theFed's action results in a change in real output and explain why the shift occurs.(F) In the short run, what happens to the price level? Explain how the Fed's action results in achange to the price level.iq.q.iAdvanced Placement Economics Macroeconomics: Student Resource Manual © Coundl for Economic Education, New York, N.SL!49
We have textbook solutions for you!
/Exploring-Economics-7th-Edition-9781285859439-288/
The document you are viewing contains questions related to this textbook.
Chapter 20 / Exercise 4
Exploring Economics
Sexton
Expert Verified
.Ii:IhFigure 4-7.2Effects of Monetary Policy in the Economy (Inflation)LRASRAS/ILl,>,,dI..LIo¢€nADREAL GDP2. Suppose that initially the economy is at the intersection of AD and SPAS in Figure 4-7.2.

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 8 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Spring
Professor
Bharucha
Tags
Macroeconomics, Federal Reserve The Fed, Inflation, Interest Rates, Monetary Policy, Advanced Placement Economics, Student Resource Manual
We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
Exploring Economics
The document you are viewing contains questions related to this textbook.
Chapter 20 / Exercise 4
Exploring Economics
Sexton
Expert Verified

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture