Monetary Policy
What open-market operation would the Federal Reserve use to restore full employment during a recessionary gap?
Buy bonds/securities
An economy is in long-run equilibrium. If AD increases, causing an increase in output and price levels in the short run, how will the economy adjust in the long-run?
AS will decrease (shift left) due to higher input costs
In the short-run, what two factors are shown as trade-offs on the Phillips Curve?
Inflation and Unemployment
How would an increase in price level in the United States impact the supply of the US dollar on FOREX markets?
Increase
What function of money is described by when money is used to determine the relative value of goods and services?
Unit of Account
If the reserve requirement is 10% and a bank has $30,000 in demand deposits and $5,000 in bonds, what is their amount of required reserves?
$3,000
How would an increase in government spending (funded by a deficit) impact interest rates and investment?
Interest rates increase
Investment decreases
What change in AD or AS would cause rightward movement along an existing Phillips curve.
A leftward shift (decrease in AD)
Assume a nation's capital/financial account is balanced at zero. What effect would a decrease in the U.S. interest rate (relative to other nations) have on the capital/financial account?
It would move into deficit (because of capital outflows from the U.S. and investment in nations with higher interest rates)
In the credit market, what group benefits from unanticipated inflation?
Borrowers (they pay back their loans using money with less purchasing power than the money they borrowed)
What is the rate banks charge other banks to get an overnight loan?
Federal Funds Rate
If the government enacts expansionary fiscal and monetary policy, what is the effect on interest rates?
Indeterminate
When a SRPC shifts to the right, what is the effect on unemployment and inflation?
Both increase (i.e. stagflation)
How would a recession in Europe impact the supply of the euro on FOREX markets?
Decrease
What is the fisher equation?
If the reserve requirement is $25% and a customer makes a deposit into a bank of $1000, by how much can the money supply increase (if the bank holds no excess reserves)?
$3,000 ($750 x 4)
If the government enacts contractionary fiscal policy, what is the impact on interest rates and the value of the dollar on foreign exchange markets?
Interest rates increase
Dollar appreciates
Draw a SRPC and show the effect of an increase of Aggregate Supply on the model.
The model should show a leftward shift of the SRPC
If a U.S. citizen earns rental income from a property they own in France, how is that recorded in the balance of payments.
Capital account, credit
What "new" tool of monetary policy was developed in response to the 2008 financial crisis and involved large-scale purchases of government bonds in order to inject liquidity directly into the economy?
Quantitative Easing (QE)
If the Fed buys a bond from Bank A for $3,000, and the reserve requirement is 20%, by how much can the money supply increase?
$15,000 ($3,000 x 5)
Show the impact of an expansionary monetary policy on interest rates using the Money Market graph.
A properly labeled graph showing an increase in MS (vertical) and a decrease in nominal interest rates.
Where do you draw the LRPC?
At the natural rate of unemployment (or full employment)
What would the effect of an increase in disposable income in the United States have on the supply of the U.S. dollar?
Increase
Under which president did the United States stop redeeming the U.S. dollar for gold (i.e. end the gold standard)?
Nixon (1971)