Macroeconomics

Glenn Hubbard, Tony O'Brien

Chapter 15

Monetary Policy

Educators


Problem 1

When Congress established the Federal Reserve in 1913 , what was its main responsibility? When did Congress broaden the Fed's responsibility?

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Numerade Educator

Problem 2

What are the Fed's four monetary policy goals?

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Numerade Educator

Problem 3

In what sense does the Fed have a "dual mandate"

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Numerade Educator

Problem 4

How can investment banks be subject to liquidity problems?

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Problem 5

What is a bank panic? Why are policymakers more concerned about bank failures than failures of restaurants or clothing stores?

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Numerade Educator

Problem 6

An article in the Wall street Journal quoted a Federal Reserve economist as referring to "the Fed's existing dual mandate to achieve maximum sustainable employment in the context of price stability."
a. Does "maximum sustainable employment" mean a zero percent unemployment rate? Briefly explain.
b. Does "price stability" mean a zero percent inflation rate? Briefly explain.

Tristan W.
Numerade Educator

Problem 7

A former Federal Reserve official argued that at the Fed, "the objectives of price stability and low long-term interest rates are essentially the same objective." Briefly explain his reasoning.

Xiaomin B.
Numerade Educator

Problem 8

In the summer of 2015 , many economists and policy-makers expected that the Federal Reserve would increase its target for the federal funds rate by the end of the year. Some economists argued, though, that it would be better for the Fed to leave its target unchanged. At the time, the unemployment rate was 5.3 percent, close to full employment, but the inflation rate was below the Fed's target of 2 percent. What policy goal would the Fed promote if it did not increase its target for the federal funds rate? Briefly explain.

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