The Taylor rule links the Federal Reserve's target for the
a. federal funds rate to the money supply.
b. federal funds rate to economic variables.
c. money supply to changes in interest rates.
d. money supply to shifts in money demand.
Suppose the equilibrium real federal funds rate is 2 percent, the target rate of inflation is 2 percent, the current inflation rate is 4 percent, and real GDP is 2 percent above potential real GDP. If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the federal funds target rate equals
a. 4 percent.
b. 6 percent.
c. 8 percent.
d. 10 percent.
Banks can continue to make loans until their actual
a. reserves equal their excess reserves.
b. actual reserves equal their checking account balances.
c. actual reserves equal their required reserves.
d. excess reserves equal their required reserves.
Expansionary monetary policy refers to the ________ to increase real GDP.
a. Federal Reserve's decreasing the money supply and increasing interest rates
b. government's decreasing spending and raising taxes
c. government's increasing spending and lowering taxes
d. Federal Reserve's increasing the money supply and decreasing interest rates
Which of the following best describes how banks create money?
a. Banks charge fees for providing financial advice.
b. Banks charge higher interest rates on loans than they pay on deposits.
c. Banks make loans from reserves.
d. Banks create checking account deposits when making loans from excess reserves.
There is a strong link between changes in the money supply and inflation
a. in neither the short run nor the long run.
b. in the long run, but not in the short run.
c. in the short run, but not in the long run.
d. in both the short run and the long run.
An increase in the interest rate causes
a. the money demand curve to shift to the right.
b. a movement up along the money demand curve.
c. a movement down along the money demand curve.
d. the money demand curve to shift to the left.