slow 9 monetary policy
The fraction of checkable deposits that banks must keep on hand as reserves, either as currency or on deposit with the Federal Reserve, is called the:
reserve requirement
The Federal Reserve changes the amount of money in circulation by:
using open market operations to buy and sell government debt (U.S. Treasury bonds).
federal funds market
A formal market for overnight loans of federal reserves is the: market for borrowing and lending reserves between banks
Which of the following refers to a liquidity trap?
A situation where increasing the money supply does not lower interest rates due to a flattening of the money demand curve.
Suppose the current federal funds rate is 4%, and Fed wants to decrease the rate to 2%. How will the Fed decrease the Federal Funds rate?
Buying bonds in the open market. Reason: To decrease the federal funds rate, the Fed will conduct open market operations by buying bonds. This will increase the supply of reserves available, which will decrease the supply of federal funds and decrease the federal funds rate.
money multiplier
If an economy experiences a change in excess reserves, the change in money supply will also depend on
Money market equilibrium
Ms = Md
Which of the following is a monetary policy tool used by the Federal Reserve?
Paying interest on excess reserves
Suppose the Federal Reserve is planning to conduct expansionary monetary policy during a recession. Which of the following is a tool they may consider using?
Reducing the interest rate paid on excess reserves
How does selling bonds in the open market change the federal funds rate?
Selling bonds decreases the supply of reserves, causing the federal funds rate to increase. By selling bonds, the Fed encourages banks to use their reserves to buy bonds. This causes a decrease in the supply of reserves and an increase in the federal funds rate.
expansionary monetary policy.
The actions taken by a country's central bank to expand the money supply and lower interest rates is called: also called easy money When aggregate demand falls, to increase aggregate demand, we can use
When aggregate demand rises, to decrease aggregate demand, we can use
The change in the money supply equals a negative money multiplier (−1/rr) multiplied by the change in excess reserves.
Reserve requirement
The fraction of checkable deposits that a bank must keep as reserves, either as currency or on deposit with the Fed.
federal fund rate
The interest rate that helps determine the interest rates charged on other loans is called the: is the interest rate that banks pay when borrowing reserves from other loans Which of the following does the Federal Reserve Board set a target _____ to influence interest rates and to either encourage or discourage additional economic activity.
federal funds market
The market for borrowing and lending reserves between banks is the:
implementation or recognition lag
The time between when a policy is enacted and when it has its full effect on the economy is called the
increase
To decrease gross investment, the interest rate must
decrease
To increase gross investment, the interest rate must:
Monetary policy
affects interest rate charged on loans and paid on savings. refers to the action of the federal to influence the supply of money and credit in the U.S. economy.
required reserves
are equal to deposits times the reserve requirement. are the fraction or portion of checkable deposits that a bank must keep on hand.
Excess reserves
are equal to total reserves minus required reserves
aggregate demand
describes the overall or total demand for all final goods and services produced in an economy. when it falls, to avoid an recession and return to the long-run equilibrium, we must increase aggregate demand. a decrease in aggregate demand will cause the price level to fall and unemployment to rise in the short run. When aggregate demand rises, to avoid inflation and return to the long-run equilibrium, we must decrease aggregate demand
When banks borrow from the Fed, the interest rate they pay is set by the Fed, and it's called the
discount rate
__________ reserves the amount the bank can lend out to earn interest equal ________reserves minus __________ reserves.
excess, total, required
A decrease in aggregate demand will cause the price level to _________ and unemployment to _______ in the short run.
fall, increase
The time between when a policy is enacted and when it has its full effect on the economy is called the __ lag. The time between when an event affects an economy and the time when we recognize that effect in the data collected is called the __ lag.
implementation; recognition
The money multiplier is the amount by which a $1 change:
in reserves will change the money supply.
An increase in aggregate demand will cause the price level to (increase/decrease) and unemployment to (fall/rise) in the short run.
increase, fall
discount rate
is the interest rate at which banks can borrow money directly from the Federal Reserve.
The interest rate
is the price of money. is the payment made to agents that lend or save money expressed as an annual percentage of the monetary amount lent or saved.
Which of the following describes a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances?
money market
To influence the money supply and interest rates, the Federal Reserve buys or sells government debt. This is called:
open market operations
contractionary monetary policy
the actions taken by a country's central bank to contract the money supply and raise interest rates with the objective of decreasing real GDP and controlling inflation sometimes referred to as tight money after data revealed that prices and wages were rising sharply for the last six months, the Fed decided to use contractionary monetary policy to make sure inflation did not rise beyond acceptable levels When aggregate demand rises, to decrease aggregate demand, we can use
Money multiplier equals:
the overall change in the money supply/the initial change in reserves 1/reserve requirement.
