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The U.S. Federal Reserve is the central bank of the United States. It has many roles in the economy, but one of its key roles is conducting monetary policy.

  1. What is monetary policy?
  2. Suppose the Fed wants to close an inflationary gap. How could it use each of the three tools of monetary policy to close the gap? 
  3. Using the monetary policy tool the Fed employs most often, the Fed closes an inflationary gap. Describe the steps the economy goes through to move to the new equilibrium output and price level. Use graphs with your answer and be sure to label everything completely.

 

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Romarie Khazandra Marijuan
Romarie Khazandra MarijuanLv10
28 Sep 2019

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Related questions

The monetary system in any economy facilitates trade and allows people to trade more efficiently, as compared to a barter economy. In the United States, the monetary authority is the Federal Reserve System (also referred to as the Federal Reserve, or informally, as the "Fed" )

For this assignment, use the information presented in the textbook and the Fed website (http://www.federalreserve.gov/) when addressing the questions below.

1- What are the tools available to the FED for controlling the money supply? Which are used most often? Which are the most effective?

2- How does the money multiplier help to determine the effects of monetary policy?

3- What are the pros and cons of using monetary policy, as opposed to the use of fiscal policy, for implementing economic policies and practices?

Monetary Neutrality is a theory in macroeconomics that states when the central bank conducts monetary policy, the central bank does not affect the real economy (e.g., the number jobs, the size and growth of output, the amount of investment). Instead, any change in the money supply would be offset by a proportional change in prices and wages. Monetary neutrality underlies the quantity theory of money. Suppose that throughout the fourth quarter of 2015, the Federal Reserve enacted a bond buying program. If monetary neutrality holds, then which of the answer choices is correct?

A. During the fourth quarter of 2015, the Fed conducted a contractionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply decreased, and U.S. nominal GDP decreased.

B. During the fourth quarter of 2015, the Fed conducted a contractionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply decreased, and U.S. nominal GDP was unchanged since it is not affected by changes in monetary policy.

C. During the fourth quarter of 2015, the Fed conducted an expansionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply increased, and U.S. nominal GDP increased.

D. During the fourth quarter of 2015, the Fed conducted an expansionary monetary policy. From the third quarter to the fourth quarter, U.S. money supply increased, and U.S. nominal GDP was unchanged since it is not affected by changes in monetary policy.

  • What are the requirements for something to be considered money? Why does the dollar have value?
  • What does the money supply consist of and what are the respective amounts in the total money supply for the United States?
  • What are the primary functions of the Fed? What role does the Federal Open Market Committee (FOMC) play in our economy?
  • What role do the financial institutions (commercial banks and other institutions) play in our financial system?
  • What is meant by the term “fractional-reserve banking” in our system? What are the implications for consumers?
  • What are the tools available to the FED for controlling the money supply? Which are used most often? Which are most effective?
  • How does the money multiplier help to determine the effects of monetary policy?
  • What are the pros and cons of using monetary policy, as opposed to the use of fiscal policy, for implementing economic policies and practices?

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