30 Questions
What is the primary goal of a central bank when implementing monetary policy?
Promoting price stability
What are the goals of monetary policy as described in the text?
Maximum employment, price stability, and moderate long-term interest rates
Who is responsible for determining monetary policy according to the text?
The Federal Open Market Committee (FOMC)
How does a central bank like the Fed manage the money supply within an economy?
By buying and selling government securities
What are some effects of the Fed implementing a restrictive monetary policy?
Reduced economic growth and investment
How are the Fed’s goals related to controlling economic growth and inflation?
They are both aimed at achieving a low level of inflation and unemployment
What is a common indicator of future inflation according to the text?
Oil prices
Which indicator is closely monitored as it tends to move in tandem with inflation?
Gold prices
What type of inflation occurs when excessive spending drives up prices?
Demand-pull inflation
How does a stimulative monetary policy affect interest rates?
Reduces interest rates
What does the Federal Open Market Committee do before determining the appropriate monetary policy?
Assesses economic conditions
What is the main purpose of changing the money supply in monetary policy?
To influence inflation rates
What is the impact of raising reserve requirements on banks' lending capacity?
It reduces their lending capacity
How does a restrictive monetary policy impact interest rates?
It raises interest rates
What is the targeted goal of a stimulative monetary policy?
Focus on growth and employment
What is the trade-off mentioned in monetary policy regarding a strong economy?
Lower unemployment and higher inflation
What are the potential risks of a stimulative monetary policy?
Risk of higher inflation and bubbles
What is the primary challenge faced by the Fed in trying to achieve both low unemployment and low inflation simultaneously?
Trade-off between strong and weak economy
What influences the values of existing money market securities?
Secondary market values of existing bonds
Which institutional participants are key in the bond market?
Commercial banks
How does a weak dollar impact exports?
Stimulates exports
What affects the interest rates on new mortgages?
Risk premium on mortgages
Which factor influences the stock market values?
Projections for corporate earnings
Who is exposed to exchange rate risk in the foreign exchange market?
Pension funds
What happens graphically when the supply curve shifts to the right due to implementing monetary policy?
Interest rate falls
How does a stimulative monetary policy affect businesses' ability to borrow funds?
All businesses can borrow funds at lower rates
What is the impact of reduced cost of capital as a result of a stimulative monetary policy?
Encourages firms to spend more money and hire more employees
Why might a stimulative monetary policy fail in controlling long-term interest rates?
Fed mainly deals with Treasury bills with short maturities
What potential adverse effect on inflation is highlighted in the text due to an increase in money supply growth?
Increase in inflationary expectations
How do the lagged effects of monetary policy impact the Fed's job according to the text?
Make the Fed's job more challenging
Learn about the implementation of monetary policy through graphical analysis and its impact on interest rates leading to an increase in business investments. Explore how the Federal Reserve's stimulative monetary policy affects businesses by enabling them to borrow funds at lower rates, which in turn influences their investment decisions.
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