Macroeconomics Final
Value of the dollar
1/price level
Using the concept of arbitrage, when the interest on reserve balances rate is lower than the federal funds rate, how will bank likely responds?
Banks will withdraw from their account at their Federal Reserve Bank and lend the funds in the federal funds market.
Which best describes how interest on reserve balances serves as a reservation rate?
Because interest on reserve balances is a risk-free option, banks should not be willing to lend their funds for less than they can earn on their reserve balances.
The Federal Reserve System consists of which of the following?
Board of Governors and the 12 Federal Reserve Banks
money supply (M1)
Currency in circulation + Saving Deposits + Checkable Deposits
Which monetary policy tool serves as a ceiling for the federal funds rate?
Discount rate
In the U.S. economy, the money supply is controlled by the
Federal Reserve System.
Which monetary policy implementation tool is the primary tool the Fed uses to steer the federal funds rate into the FOMC's target range?
Interest on reserve balances
Which best describes how the FOMC conducts monetary policy during an inflationary period to achieve its price stability objective?
It increases the target rate range for the federal funds rate.
Which best describes how the FOMC conducts monetary policy to increase employment during a recession to achieve its maximum employment objective?
Lower the target range for the federal funds rate and simultaneously decrease the interest on reserve balances rate, overnight reverse repurchase agreement offering rate, and discount rate.
Which monetary policy tool is a supplementary tool that sets a floor for the federal funds rate?
Overnight reverse repurchase agreement facility
What are the Fed's dual mandate goals?
Price stability and maximum employment
What role do open market operations play in monetary policy?
The Fed uses open market operations to ensure that the level of reserves remains ample.
If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as
a medium of exchange.
If you are estimating your total expenses for school next semester, you are using money primarily as
a unit of account.
Compared to fiscal policy, monetary policy has a much shorter
administrative lag.
A contractionary monetary policy is designed to shift the
aggregate demand curve leftward.
The members of the Federal Reserve Board
are appointed for 14-year terms.
In the United States, the money supply (M1) includes
coins, paper currency, checkable and savings deposits.
Which of the following is a monetary policy intended to combat a recession?
decrease the federal funds target range to shift the aggregate demand curve rightward
Other things equal, a contractionary monetary policy during a period of demand pull inflation will
increase interest rates, reduce investment, and reduce aggregate demand
The value of money varies
inversely with the price level.
The amount of money reported as M2
is larger than the amount reported as M1.
Currency held in the vault of First National Bank is
not counted as part of the money supply.
Which of the following is a tool of monetary policy?
overnight reverse repurchase agreement facility
The discount rate is the rate that banks pay for loans from
the Fed.
The interest rate that banks charge other banks for loans
the federal funds rate.
When the FOMC conducts monetary policy, it sets the target range for
the federal funds rate.
The money supply is backed by
the government's ability to control the supply of money and therefore to keep its value relatively stable.
What is not one of the advantages of monetary policy over fiscal policy?
the lack of any timing lags
Research for industrially advanced countries indicates that
the more independent the central bank, the lower the average annual rate of inflation.
The Federal Open Market Committee (FOMC) is made up of
the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.