Ch 30 Preview

What term is used to describe the proportion of its deposits that a bank is legally required to deposit with the central bank?

- Reserve requirement

A central bank that wants to increase the quantity of money in the economy will

- buy bonds in open market operations.

Which of the following refers to policy that involves altering the quantity of money and thus affecting the level of interest rates and the extent of borrowing?

-Monetary policy

What is meant by open market operations?

-The central bank buying or selling bonds to influence the quantity of money and the level of interest rates.

Which of the following events would cause interest rates to increase?

-a higher discount rate

The Central Bank has raised its reserve requirements from 10% to 12%. If Southern Bank finds that it is not holding enough in reserves to meet the higher requirements, then it will likely

-borrow for the short term from the central bank.

When a Central Bank makes a decision that will cause an increase in both the money supply and aggregate demand, it is

-following a loose monetary policy.

When the Central Bank acts in a way that causes the money supply to increase while aggregate demand remains unchanged, it is

-following an expansionary monetary policy.

The quantitative easing policies adopted by the Federal Reserve are usually thought of as

-temporary emergency measures.

According to the quantity theory, if constant growth in the money supply is combined with fluctuating velocity, which of the following is most likely to result?

-unpredictable rises and falls in nominal GDP