Chapter 16: Q.23 - Problems (page 370)
Consider figure 16-7. Discuss a specific monetary policy action that Fed's Trading Desk could implement in order to induce the effects traced out by this figure.
The figure depicting final increase in Aggregate Demand can be done by buying securities in Federal open market operations.
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During an interval between mid-2010 and early 2011, the Federal Reserve embarked on a policy it termed "quantitative easing." Total reserves in the banking system increased. Hence, the Federal Reserve's liabilities to banks increased, and at the same time, its assets rose as it purchased more assets-many of which were securities with private market values that had dropped considerably. The money multiplier declined, so the net increase in the money supply was negligible. Indeed, during a portion of the period, the money supply actually declined before rising near its previous value. Evaluate whether the Fed's "quantitative easing" was a monetary policy or credit policy action.
Take a look at Figure 16-6. Suppose that a multiple reduction in GDP is the final outcome that the Fed desires in the last box in the figure. Explain the required directions of efforts - that increases or decreases - that most occur in the preceding boxes in the figure in order to yield in this desired decrease in real GDP
Why might the fact that private economic forecasters compete to sell their services help to constrain behavioural tendencies for too much optimism in projections of real GDP growth? Explain your reasoning.
Take a look at Figure 16-3. Discuss a policy action that the Trading Desk at Federal Reserve Bank of New York could undertake in order to bring about the increase in aggregate demand displayed in the figure
Explain why the net export effect of a contractionary monetary policy reinforces the usual impact that monetary policy has on equilibrium real GDP per year in the short run.
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