Which of the following represents one of the new monetary tools that the Fed has

Question

Which of the following represents one of the new monetary tools that the Fed has developed as a result of the recent financial crisis?

A) In the last two and a half decades, the Fed has become much less transparent about its action
B)The Fed is not responsible for monetary and fiscal policy
C)The fed has started buying provate securities and making loans to private firms
D) The Fed has become part of the Department of Treasury
E)None of these

 If the Fed is worried about increasing inflation and decides to raise the interest rate, real GDP will...?

A) remain above potential GDP if consumption is more responsive to changes in interest rates than the Fed expected

B)come in below potential if potential GDP is higher than the Fed expected.

C)come in above potential GDP if some other factor acts to shift the AD curve to the left

D) come in below potential if investment is less responsive to changes in interest rates than the Fed expected

E) quickly return to potential GDP as the AD curve shifts to the left

I take intro to macroeconomics, but these 2 questions are rather confusing. I have so many problems with these questions, i really do not understand it. Can you please explain the answers Thank You!

Explanation / Answer

1. A Greater public understanding of these tools and their use can increase understanding of the measures implemented by the Federal Reserve--and the rest of the federal government--to strengthen financial markets and institutions and encourage a resumption of economic growth. The Federal Reserve considers transparency about the goals, conduct, and stance of monetary policy to be fundamental to the effectiveness of monetary policy. The Federal Reserve Act sets forth the goals of monetary policy, specifically "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." Financial stability is an important prerequisite for achieving those goals. Transparency about monetary policy also helps promote the accountability of the Federal Reserve to the Congress and the public. Such accountability is especially critical when nontraditional policy tools--which are less familiar to the public than traditional policy tools--are employed. 2. D Lower interest rate increases spending and thus GDP but raising the interest rate b/c of a fear of inflation will lower real GDP if the economy does not respond.

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