Macroeconomics final unit
The purpose of a restrictive monetary policy is to
increase interest rates to rein in spending
If the Fed wants to discourage bank lending, it will
increase the interest paid on reserve balances held at the Fed
The purchasing power of the dollar
is the reciprocal of price level
In terms of the mechanics of quantitative easing
it works the same as open-market operations
An increase in the money supply will
lower interest rates and increase the equilibrium GDP
Joe deposits $200 in currency into his checking account at a bank. This deposit is treated as
no change in the money supply because the $200 decrease in currency has been converted to a $200 increase in checkable deposits
Time deposits of $100,000 or more are
not a component of M1 or M2
Currency held in the vault of First National Bank is
not counted as part of the money supply
Which of the following actions by the Fed would cause the money supply to increase?
optimistic forward guidance
The term "bankers' banks" means that the Federal Reserve
performs essentially the same functions for banks and thrifts as those institutions perform for the public
Open-market operations include
quantitative easing
The Fed's response to the zero lower bound problem was
quantitative easing
The administered rates are the rates of interest at which
set by a central bank to help it manage market-determined interest rates
Which of the following will happen when the Federal Reserve lowers the interest rate paid on reserve balances?
Banks will choose to lend into the money market instead of lending to the Fed
In a reverse repo transaction,
the Fed borrows money from nonbank financial firms
An expansionary monetary policy is a Fed policy in which
the administered rates may be lowered to encourage bank and nonbank lending
To say that the Federal Reserve Banks are quasi-public banks means that
they are privately owned but managed in the public interest
Checkable deposits are classified as money because
they can be readily used in purchasing goods and paying debts
When a consumer wants to compare the price of one product with another, money is primarily functioning as a
unit of account
Interest paid on reserve balances held at the Fed
will incentivize banks to hold more reserves and reduce riskier lending
Stabilizing a nation's price level and the purchasing power of its money can be achieved
with both fiscal and monetary policy
An interest rate set by a central bank to help it manage market-determined interest rates defines
an administered rate
Members of the Federal Reserve Board of Governors are
appointed by the president to staggered 14-year terms
The seven members of the Board of Governors of the Federal Reserve System are
appointed by the president with the confirmation of the Senate
The Federal Reserve System's three administered rates are the
IORB rate, ON RRP rate, and discount rate
Assume the economy is operating at less than full employment. An expansionary monetary policy will cause interest rates to ________, which will ___________ investment spending.
decrease; increase
"Near-monies" are included in
M2 only
The interest rate at which the Federal Reserve Banks lend to banks is called the
discount rate
Why doesn't the Fed want to drive nominal interest rates below zero in response to a financial crisis and recession?
Negative nominal rates would cause people to withdraw their money from banks, reducing the ability of banks to extend loans
The functions of money are to serve as a
Unit of account, store of value, and medium of exchange
Refer to the table. Money supply M1 for this economy is
$220
The Federal Reserve System was established by the Federal Reserve Act of
1913
The group that sets the Federal Reserve System's policy on buying and selling government securities is the
FOMC
As it relates to Federal Reserve activities, the acronym FOMC describes the
Federal Open Market Committee
A $20 bill is a
Federal Reserve Note
Monetary policy is expected to have its greatest impact on
Ig
Which of the following statements about quantitative easing is most accurate?
Quantitative easing refers to the Fed's use of open-market operations to buy hundreds of billions of dollars' worth of long-term bonds
The money supply is backed
by the government's ability to control the supply of money and therefore to keep its value relatively stable
PayPal and Venmo are
cash-transfer systems
The money market comprises short-term lending markets that include markets for
commercial paper