Econ Test 4
of the 3 traditional monetary policy tools the fed can use to achieve monetary policy goals, the most important is
conducting open market operations
of the three traditional monetary policy tools the fed can use to achieve its monetary policy goals, the most important is
conducting open market operations (buying and selling bonds)
contractionary monetary policy
decrease GDP and money supply 1) fed sells bonds 2) increase required reserve 3) increase discount rate
to increase the money supply, the FED could
decrease reserve requirements or lower the discount rate
If the FED set and achieved a goal of zero unemployment
the inflation rate would increase
other things equal, if the fed increases the discount rate
the monetary base and the money supply will both decrease
the federal open market committee consists of
the seven members of the board of governors, the president of the federal reserve bank of NY, and 4 other FED bank presidents
The federal reserve system is the _________ incarceration of a central bank in the US
third
the fed consists of 12
federal banks, each of which have a degree of independence from the government.
P x Yf
full employment nominal GDP
Yf
full employment real GDP
3 main monetary policies
1) Open market operations (buying/selling) stocks 2) Required reserve 3) Discount Rates
the board of governors of the FED consists of 7 members each of which are
appointed by the potus
equation of exchange
MV=PY
PY
Nominal current GDP
Recessionary gap
Yc<Yf
Inflationary gap
Yc>Yf
included among the feds primary goals to promote a well functioning economy are
a low rate of unemployment, a low and stable inflation rate, and financial market stability.
With its goal of price stability, the FED attempts to
achieve a low, stable inflation rate
the U.S. federal reserve
acts within the boundaries established by congress and the president, but has flexibility in meeting the goals of monetary policy
the fed conducts open market operations with the primary goal of
affecting the federal funds rate
the fed conducts open market operations with the primary goal of
affecting the federal funds rate (short term interest rates)
through open market operations, the fed
controls the supply of reserves, but not the demand for reserves, in the banking system
to decrease bank reserves, the Fed
controls the supply of reserves, but not the demand for reserves, in the banking system
Yc
current real GDP
to decrease bank reserves, the fed can
engage in an open market sale
to decrease bank reserves, the fed can
engage in an open market sale.
to decrease bank reserves, the fed can
engage in open market operations
to increase the money supply, the federal reserve could
engage in open market operations
expansionary monetary policy
increase GDP and money supply 1) buy back bonds 2) decrease required reserve 3) lower discount rate
When a bank receives a $50 million discount loan from the federal reserve, the bank's reserves
increase by $50 million
to combat an inflationary gap, the FED could likely
increase the discount rate
When the fed makes an open market purchase, the money supply will ____, which will cause long-term real interest rates to _____
increase; decrease
a decrease in the discount rate_______ bank reserves and ____ the federal funds rate.
increases; lowers
When the fed attempts to increase real GDP and employment by ____ its target for the federal funds rate, it is conducting ____ monetary policy.
lowering; expansionary
the equation of exchange is represented by
money supply* velocity= nominal GDP
the U.S. federal reserve is
not dependent on the government for funding
the most common form of monetary policy engaged by the federal open market committee is
open market operations
during the housing market and financial crisis of 2007 and 2008, the fed increased the volume of discount loan in attempt to
reassure financial markets and promote financial market stability
The FED was established in 1913 to
stop bank panics by acting as lender of last resort