Question

21. the increase in excess reserves that occured as a result of the mortgage debt crisis...

21. the increase in excess reserves that occured as a result of the mortgage debt crisis

a. was offset by restrictive monetary policy

b. rendered open-market operations ineffective.

c. caused the Fed to set a negative nominal interest rate target for the federal funds rate.

d. prevented the Fed from taking any further action to increase the money supply

22. What does it mean economists say that the Fed has attempted to "normalize" monetary policy after the Great Recession?

a. The Fed has tried to use monetary policy to restore the unemployment rat to its normal full enmployment rate of around 5 percent.

b. The Fed has tried to use monetary policy to raise excess reserves back up to normal precession levels.

c. The Fed has tried to make all of the monetary policy actions used during the financial crisis a normal part of the monetary policy tool kit.

d. The Fed has tried to use monetary policy to bring interest rates back to the

25. According to the Taylor rule,

a. for every 1 percentage point that unemployment exceeds the natural rate of unemployment, there is a 2- percentage- point gap between potential and actual GDP

b. growth in the money supply should be limited to the long-run average growth rate of real GDP.

c. if inflation rises by 1 percentage point above its target, then the Fed should raise the real federal funds rate by one half a percentage point

d. the rate of money growth should be set at 4 percent per year

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Answer #1

21. b. b. rendered open-market operations ineffective. Fed's expansionary monetary policy toll aimed to increase liquidity but excess reserves made it ineffective.

22. c. The Fed has tried to make all of the monetary policy actions used during the financial crisis a normal part of the monetary policy tool kit. During crisis, Fed used expansionary monetary policy tools to reduce inflation and bring liquidity in the economy.

25. c. if inflation rises by 1 percentage point above its target, then the Fed should raise the real federal funds rate by one half a percentage point. Taylor rule formula helps in inflation targeting and helps in calculating the responsiveness of nominal interest rate to changes in inflation and output.

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