Monetary Policy
Monetary multiplier (formula)
1/reserve ratio
In the consolidated balance sheet of the Federal Reserve Banks, loans to commercial banks are: -A liability of the Federal Reserve Banks and commercial banks -An asset of the Federal Reserve Banks and commercial banks -A liability of the Federal Reserve Banks and an asset for commercial banks -An asset of the Federal Reserve Banks and a liability for commercial banks
An asset of the Federal Reserve Banks and a liability for commercial banks
The money the banks hold in the FED
Bank Reserves
If the interest rate increases, there will be a(n): -Decrease in the amount of money held as assets -Decrease in the transactions demand for money -Increase in the transactions demand for money -Increase in the amount of money held as assets
Decrease in the amount of money held as assets
Which is considered a strength of monetary policy compared to fiscal policy? -The ability to increase the budget deficit -The ability to decrease the budget surplus -Its protection from political pressure -Its cyclical asymmetry
Its protection from political pressure
Most important tool:
Open Market Operations
Tools of Monetary Policy
Open market operations Reserve Ratio Discount Rate Federal Funds Rate
Money needed in FED
Required Reserves
A newspaper headline reads: "Fed Cuts Federal Funds Rate for Fifth Time This Year." This headline indicates that the Federal Reserve is most likely trying to: -Reduce inflation in the economy -Raise interest rates -Ease monetary policy -Tighten monetary policy
Ease monetary policy
Extra money in reserves that is greater than the required amount
Excess Reserves
Federal Reserve System
FED - Central Bank of US; regulates monetary policy
Pool of money supply for bank to bank borrowing
Federal Funds Market
In recent years, the Fed often communicated its intentions to restrict or expand monetary policy by announcing a change in targets for the: -Exchange rate -Federal funds rate -Prime interest rate -Consumer price index
Federal Funds Rate
The interest rate that banks charge each other for loans
Federal Funds Rate
The physical money the bank pays back to members
Interest
The rate of money the bank pays you for putting in bank
Interest Rate
The level of GDP will tend to increase when: -Reserve requirements are increased -There is an increase in the discount rate -The Federal Reserve buys government securities in the open market -The Federal Reserve sells government securities in the open market
The Federal Reserve buys government securities in the open market
A contraction of the money supply: -increases the interest rate and decreases aggregate demand. -increases both the interest rate and aggregate demand. -lowers the interest rate and increases aggregate demand. -lowers both the interest rate and aggregate demand.
increases the interest rate and decreases aggregate demand.
If the amount of money demanded exceeds the amount supplied, the: -demand-for-money curve will shift to the left. -money supply curve will shift to the right. -interest rate will rise. -interest rate will fall.
interest rate will rise.
The opportunity cost of holding money: -is zero because money is not an economic resource. -varies inversely with the interest rate. -varies directly with the interest rate. -varies inversely with the level of economic activity.
varies directly with the interest rate.
