Macro Final Fall 2025 (chat)

What is the primary responsibility of the Federal Reserve (The Fed)?

To manage the monetary policy of the United States.

What are the main components of the Federal Reserve's structure?

The Board of Governors, 12 regional Federal Reserve Banks, and the FOMC (Federal Open Market Committee).

What are the main goals of the Federal Reserve according to its dual mandate?

Maximum employment and stable prices.

What does an increase in the money supply through Open Market Operations (OMO) do to interest rates?

It lowers interest rates.

What happens when the Federal Reserve sells bonds in the market?

It decreases the money supply and raises interest rates.

How do reserve requirements affect the money supply when lowered?

More lending occurs, leading to an increase in the money supply.

What is the effect of a lower discount rate by the Federal Reserve?

It increases the money supply by making it easier for banks to borrow.

What is the Quantity Theory of Money equation?

MV = PY.

In the Quantity Theory of Money, what does the variable 'M' represent?

The money supply.

What does 'sticky wage theory' explain in relation to the short-run aggregate supply?

Wages are slow to adjust, leading to output changes in response to price level changes.

What is the primary factor that causes the Aggregate Demand (AD) curve to slope downward?

The wealth effect, interest rate effect, and net exports effect.

Which components of GDP impact Aggregate Demand (AD)?

Consumption (C), Investment (I), Government spending (G), and Net Exports (NX).

What does an increase in consumer confidence do to Aggregate Demand?

It shifts Aggregate Demand to the right.

What are some common shifters of the Aggregate Demand curve?

Changes in C, I, G, NX, taxes, expectations, and policies.

Under what condition does the Long-Run Aggregate Supply (LRAS) shift?

When the long-run productive capacity changes.

What occurs in the economy during a recession in terms of wages and aggregate supply?

Wages fall, shifting SRAS to the right, returning to potential GDP (Y*).

What are the effects of expansionary fiscal policy on Aggregate Demand?

It increases AD by raising government spending or cutting taxes.

What is the basic premise of the theory of excess money balances?

An increase in money supply leads to lower interest rates, encouraging investments.

What characterizes monetary neutrality according to the Classical View?

In the long run, money supply only affects nominal variables, not real variables.