Implementing Monetary Policy and Business Investments
30 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the primary goal of a central bank when implementing monetary policy?

  • Promoting price stability (correct)
  • Increasing unemployment
  • Raising long-term interest rates
  • Maximizing inflation

    • What are the goals of monetary policy as described in the text?

  • Low employment and high price fluctuations
  • High inflation and low unemployment
  • Maximum employment, price stability, and moderate long-term interest rates (correct)
  • Low inflation and high unemployment

    • Who is responsible for determining monetary policy according to the text?

  • The Treasury Department
  • The President of the United States
  • The Federal Open Market Committee (FOMC) (correct)
  • The Securities and Exchange Commission (SEC)

    • How does a central bank like the Fed manage the money supply within an economy?

    <p>By buying and selling government securities</p> Signup and view all the answers

    What are some effects of the Fed implementing a restrictive monetary policy?

    <p>Reduced economic growth and investment</p> Signup and view all the answers

    How are the Fed’s goals related to controlling economic growth and inflation?

    <p>They are both aimed at achieving a low level of inflation and unemployment</p> Signup and view all the answers

    What is a common indicator of future inflation according to the text?

    <p>Oil prices</p> Signup and view all the answers

    Which indicator is closely monitored as it tends to move in tandem with inflation?

    <p>Gold prices</p> Signup and view all the answers

    What type of inflation occurs when excessive spending drives up prices?

    <p>Demand-pull inflation</p> Signup and view all the answers

    How does a stimulative monetary policy affect interest rates?

    <p>Reduces interest rates</p> Signup and view all the answers

    What does the Federal Open Market Committee do before determining the appropriate monetary policy?

    <p>Assesses economic conditions</p> Signup and view all the answers

    What is the main purpose of changing the money supply in monetary policy?

    <p>To influence inflation rates</p> Signup and view all the answers

    What is the impact of raising reserve requirements on banks' lending capacity?

    <p>It reduces their lending capacity</p> Signup and view all the answers

    How does a restrictive monetary policy impact interest rates?

    <p>It raises interest rates</p> Signup and view all the answers

    What is the targeted goal of a stimulative monetary policy?

    <p>Focus on growth and employment</p> Signup and view all the answers

    What is the trade-off mentioned in monetary policy regarding a strong economy?

    <p>Lower unemployment and higher inflation</p> Signup and view all the answers

    What are the potential risks of a stimulative monetary policy?

    <p>Risk of higher inflation and bubbles</p> Signup and view all the answers

    What is the primary challenge faced by the Fed in trying to achieve both low unemployment and low inflation simultaneously?

    <p>Trade-off between strong and weak economy</p> Signup and view all the answers

    What influences the values of existing money market securities?

    <p>Secondary market values of existing bonds</p> Signup and view all the answers

    Which institutional participants are key in the bond market?

    <p>Commercial banks</p> Signup and view all the answers

    How does a weak dollar impact exports?

    <p>Stimulates exports</p> Signup and view all the answers

    What affects the interest rates on new mortgages?

    <p>Risk premium on mortgages</p> Signup and view all the answers

    Which factor influences the stock market values?

    <p>Projections for corporate earnings</p> Signup and view all the answers

    Who is exposed to exchange rate risk in the foreign exchange market?

    <p>Pension funds</p> Signup and view all the answers

    What happens graphically when the supply curve shifts to the right due to implementing monetary policy?

    <p>Interest rate falls</p> Signup and view all the answers

    How does a stimulative monetary policy affect businesses' ability to borrow funds?

    <p>All businesses can borrow funds at lower rates</p> Signup and view all the answers

    What is the impact of reduced cost of capital as a result of a stimulative monetary policy?

    <p>Encourages firms to spend more money and hire more employees</p> Signup and view all the answers

    Why might a stimulative monetary policy fail in controlling long-term interest rates?

    <p>Fed mainly deals with Treasury bills with short maturities</p> Signup and view all the answers

    What potential adverse effect on inflation is highlighted in the text due to an increase in money supply growth?

    <p>Increase in inflationary expectations</p> Signup and view all the answers

    How do the lagged effects of monetary policy impact the Fed's job according to the text?

    <p>Make the Fed's job more challenging</p> Signup and view all the answers

    More Like This

    Use Quizgecko on...
    Browser
    Open
    Browser
    Browser