2,

Suppose that a central bank that is operating on the downward-sloping portion of the reserve demand curve decides to purchase $1,000 worth of foreign exchange reserves and then sterilize this foreign exchange market intervention. Show the impact on the central bank's balance sheet. Central Bank Balance Sheet Bank Reserves U.S. Securities (Click to select) - (Click to select) Foreign currency reserves Bank Reserves (Click to select) (Click to select) What would the overall impact be on the monetary base? The overall impact of the sterilized intervention is to make a compositional change on the (Click to select) side of the balance sheet while leaving the (Click to select) side unchanged. Therefore, the sterilized intervention (Click to select) A) the monetary base and the domestic interest rate does not change. What would be the impact, if any, on the exchange rate? Assume that the intervention took place in a deep, well-functioning foreign exchange market. The exchange rate will (Click to select) - Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 2 percentage points. Target federal funds rate = Natural rate of interest + Current inflation + 1/2(Inflation gap) + 1/2(Output gap) Instructions: Enter your responses rounded to one decimal place. If inflation goes up by 2 percentage points, the target (nominal) federal funds rate goes up by percentage points ( percentage points due to the direct impact of inflation and another percentage points due to an increase in the inflation gap). Consider the Fisher equation. Given the increase in the nominal interest rate you just calculated and the 2 percentage point increase in inflation we started with, the real interest rate must have increased by percentage points. The interest rate on excess reserves is Multiple Choice the lower bound of the federal funds target rate range. equal to the target federal funds rate. the upper bound of the federal funds target rate range. unrelated to the federal funds target rate range. The Breton Woods System was an agreement that required each participating country to Multiple Choice adopt standardized tariffs across all participating countries. abolish all trade barriers. stay on the gold standard. peg their currency to the U.S. dollar. A fixed exchange rate policy Multiple Choice will likely make domestic inflation more volatile. imports monetary policy. strengthens domestic interest rate policy. decreases central bank policy accountability and transparency. Suppose that a central bank that is operating on the downward-sloping portion of the reserve demand curve decides to purchase $1,000 worth of foreign exchange reserves and then sterilize this foreign exchange market intervention. Show the impact on the central bank's balance sheet. Central Bank Balance Sheet Bank Reserves U.S. Securities (Click to select) - (Click to select) Foreign currency reserves Bank Reserves (Click to select) (Click to select) What would the overall impact be on the monetary base? The overall impact of the sterilized intervention is to make a compositional change on the (Click to select) side of the balance sheet while leaving the (Click to select) side unchanged. Therefore, the sterilized intervention (Click to select) A) the monetary base and the domestic interest rate does not change. What would be the impact, if any, on the exchange rate? Assume that the intervention took place in a deep, well-functioning foreign exchange market. The exchange rate will (Click to select) - Use the following Taylor rule to calculate what would happen to the real interest rate if inflation increased by 2 percentage points. Target federal funds rate = Natural rate of interest + Current inflation + 1/2(Inflation gap) + 1/2(Output gap) Instructions: Enter your responses rounded to one decimal place. If inflation goes up by 2 percentage points, the target (nominal) federal funds rate goes up by percentage points ( percentage points due to the direct impact of inflation and another percentage points due to an increase in the inflation gap). Consider the Fisher equation. Given the increase in the nominal interest rate you just calculated and the 2 percentage point increase in inflation we started with, the real interest rate must have increased by percentage points. The interest rate on excess reserves is Multiple Choice the lower bound of the federal funds target rate range. equal to the target federal funds rate. the upper bound of the federal funds target rate range. unrelated to the federal funds target rate range. The Breton Woods System was an agreement that required each participating country to Multiple Choice adopt standardized tariffs across all participating countries. abolish all trade barriers. stay on the gold standard. peg their currency to the U.S. dollar. A fixed exchange rate policy Multiple Choice will likely make domestic inflation more volatile. imports monetary policy. strengthens domestic interest rate policy. decreases central bank policy accountability and transparency