Econ 101: Monetary Policy ALA
The money multiplier equals:
1/reserve requirement.
___________ demand describes the overall or total demand for all final goods and services produced in an economy.
Aggregate
Suppose the Federal Reserve wants to decrease the money supply by $400 billion. If the reserve requirement (rr) is 0.2, calculate the change in reserves that the Federal Reserve must make. __________
Blank 1: $80 billion
An increase in aggregate demand will cause the price level to __________ (increase/decrease) and unemployment to __________ (fall/rise) in the short run.
Blank 1: increase Blank 2: decrease or fall
Governments use __________ __________ to keep prices stable and encourage economic growth.
Blank 1: monetary Blank 2: policy
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.
__________ reserves are equal to total reserves minus required reserves.
Excess
___________ reserves are equal to total reserves minus required reserves.
Excess
__________ monetary policy is sometimes referred to as "easy money."
Expansionary
___________ policy affects interest rates charged on loans and paid on savings, thereby influencing the price of goods, services, and resources.
Monetary
___________ policy affects interest rates charged on loans and paid on savings.
Monetary
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
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
__________ reserves are equal to deposits times the reserve requirement.
Required
__________ reserves are the fraction or portion of checkable deposits that a bank must keep on hand.
Required
___________ reserves are equal to deposits times the reserve requirement.
Required
___________ reserves are the fraction or portion of checkable deposits that a bank must keep on hand.
Required
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.
How is a change in the money supply calculated when there is a change in excess reserves?
The change in the money supply equals a negative money multiplier (−1/rr) multiplied by the change in excess reserves.
Which of the following does the Federal Reserve Board set a target for?
The federal funds rate
What is the reserve requirement?
The fraction of checkable deposits that a bank must keep as reserves, either as currency or on deposit with the Fed.
Which of the following refers to the implementation lag?
The time between when a policy is enacted and when it has its full effect on the economy.
A situation where increasing the money supply does not lower interest rates due to a flattening of the money demand curve refers to:
a liquidity trap.
A money market is:
a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances.
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
The federal funds market is the market for borrowing and lending reserves between __________.
banks
The federal funds market is the market for borrowing and lending reserves between ___________
banks
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 is __________ monetary policy.
contractionary
The actions taken by a country's central bank to contract the money supply and raise interest rates is called __________ monetary policy
contractionary
When aggregate demand rises, to decrease aggregate demand, we can use __________ monetary policy.
contractionary
The actions taken by a country's central bank to contract the money supply and raise interest rates is called:
contractionary monetary policy. tight money.
A(n) __________ in aggregate demand will cause the price level to fall and unemployment to rise in the short run.
decrease
To increase gross investment, the interest rate must:
decrease
The ___________ rate is the interest rate at which banks can borrow money directly from the Federal Reserve.
discount
The interest rate at which banks can borrow money directly from the Federal Reserve is called the:
discount rate.
Actions taken by a country's central bank to expand the money supply and lower interest rates with the objective of increasing real GDP and reducing unemployment is __________ monetary policy.
expansionary
The actions taken by a country's central bank to expand the money supply and lower interest rates is called __________ monetary policy.
expansionary
When aggregate demand falls too much to increase aggregate demand, we can use __________ monetary policy.
expansionary
When aggregate demand falls, to increase aggregate demand, we can use __________ monetary policy.
expansionary
The actions taken by a country's central bank to expand the money supply and lower interest rates is called:
expansionary monetary policy.
The discount rate is set by the ___________.
fed
A formal market for overnight loans of federal reserves is the:
federal funds market.
The market for borrowing and lending reserves between banks is the:
federal funds market.
The Federal Reserve Board set a target for the __ to influence interest rates and to either encourage or discourage additional economic activity.
federal funds rate
One of the key interest rates in the economy is called the:
federal funds rate.
The interest rate that banks pay in the formal market for overnight loans of federal reserves is called the:
federal funds rate.
The interest rate that helps determine the interest rates charged on other loans is called the:
federal funds rate.
A reserve requirement specifies the __________ of checkable deposits that a bank must keep on hand.
fraction
The time between when a policy is enacted and when it has its full effect on the economy is called the __________ lag.
implementation
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.
A(n) __________ in aggregate demand will cause the price level to rise and unemployment to fall in the short run.
increase
When aggregate demand rises, to avoid __________ and return to the long-run equilibrium, we must decrease aggregate demand.
inflation
Monetary policy affects ___________ rates charged on loans and paid on savings.
interest
The ___________ rate is the payment made to agents that lend or save money expressed as an annual percentage of the monetary amount lent or saved.
interest
The discount rate is the ___________ rate at which banks can borrow money directly from the Federal Reserve.
interest
Monetary policy affects aggregate demand by changing the quantity of __________ demanded in the economy.
investment
The interest rate:
is the price of money.
A situation where increasing the money supply does not lower interest rates due to a flattening of the money demand curve refers to a(n) __________ trap.
liquidity
The reserve requirement is the __________ percentage of deposits that banks must keep on hand as reserves.
minimum
Governments use __________ policy to keep prices stable and encourage economic growth.
monetary
The ___________ market is a market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances.
money
The ___________ multiplier is the amount by which a $1 change in reserves will change the money supply.
money
The money ___________ is the amount by which a $1 change in reserves will change the money supply.
multiplier
To influence the money supply and interest rates, the Federal Reserve buys or sells government debt. This is called:
open market operations.
When aggregate demand falls, to avoid a(n) __________ and return to the long-run equilibrium, we must increase aggregate demand.
recession
The __________ requirement is the fraction of checkable deposits that banks must keep on hand as reserves either as currency or on deposit with the Federal Reserve.
reserve
The ___________ requirement is the fraction of checkable deposits that banks must keep on hand as reserves either as currency or on deposit with the Federal Reserve.
reserve
The ___________ requirement specifies the fraction of checkable deposits that a bank must keep on hand.
reserve
The __________requirement is the fraction of checkable deposits that banks must keep on hand as reserves either as currency or on deposit with the Federal Reserve.
reserve
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 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.
To make sure banks meet the daily needs of customers, the Federal Reserve enforces a:
reserve requirement.
The federal funds market is the market for borrowing and lending ___________ between banks.
reserves
The money multiplier is the amount by which a $1 change in ___________ will change the money supply.
reserves
If an economy experiences a change in excess reserves, the change in money supply will also depend on
the money multiplier.
The money multiplier equals:
the overall change in the money supply/the initial change in reserves.
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).
