quiz 11 notes.docx - Which one of the following is not one of the monetary policy goals of the Fed D Reduce income inequality Why is the Fed sometimes

quiz 11 notes.docx - Which one of the following is not one...

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Which one of the following is not one of the monetary policy goals of the Fed? D. Reduce income inequality. Why is the Fed sometimes said to have a "dual mandate"? The Fed is said to have a" dual mandate" because D. maintaining price stability and high employment are the two most important goals of the Fed that are explicitly mentioned in the Employment Act of 1946. An article in the Wall Street Journal quoted a Federal Reserve economist as referring to "the Fed's existing dual mandate to achieve maximum sustainable employment in the context of price stability." Source: Pedro Nicolaci Da Costa, "Fed Should Make Bond Buys a Regular Policy Tool, A Boston Fed Paper Finds," Wall Street Journal , April 23, 2015. "Maximum sustainable employment" means the economy is producing at its potential where D. unemployment includes frictional and structural unemployment. "Price stability" means C. a low and stable inflation rate. Monetary policy is defined as: C. The actions the Federal Reserve takes to manage the money supply and interest rates. Which of the following is not one of the monetary policy goals of the Federal Reserve ("the Fed")? B. a high foreign exchange rate of the U.S. dollar relative to other currencies An increase in interest rates affects aggregate demand by D. shifting the aggregate demand curve to the left, reducing real GDP and lowering the price level. As the interest rate increases, A. consumption, investment, and net exports decrease; aggregate demand decreases.
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If the Fed believes the economy is about to fall into recession, it should B. use an expansionary monetary policy to lower the interest rate and shift AD to the right. If the Fed believes the inflation rate is about to increase, it should A. use a contractionary monetary policy to increase the interest rate and shift AD to the left. What is "quantitative easing"? Quantitative easing involved the Fed's A. buying longer term Treasury securities that are not usually involved in open market operations. What is "Operation Twist"? "Operation Twist" refers to C. the Fed's program to purchase $400 billion in long-term Treasury securities while selling an equal amount of shorter-term Treasury securities. Which of the following was the Fed's objective in using "quantitative easing" and "Operation Twist"? D. All of the above. A student says the following: "I understand why the Fed uses expansionary policy but I don't understand why it would ever use contractionary policy. Why would the government ever want the economy to contract?" The government would want the economy to contract when real GDP is B. above potential GDP and the price level is rising. According to an article in the Wall Street Journal, "Brazil's economy grew just 2.3% in 2013, compared with 7.5% in 2010. The country also has struggled with persistently high inflation, which has forced its central bank to raise interest rates." Source: Emily Glazer and Luciana Magalhaes, "Brazil's Debt- Laden Firms Try to Stay Afloat," Wall Street Journal , March 18, 2014.
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