econ 3229 unit 13 ch 15
more reduces
*6 monetary policy goals* 6. foreign-exchange market stability Fluctuations in the dollar's value change the international competitiveness of the US industry: a rising dollar makes US goods______ expensive abroad and _____ exports
planning
*6 monetary policy goals* 6. foreign-exchange market stability stable dollar simplifies____ for commercial and financial transactions
hyperinflation
*6 monetary policy goals* 1. Price Stability ________: rates of inflation in the hundred or thousand of percent per year
inflation
*6 monetary policy goals* 1. Price Stability _________ or persistent rising prices, erodes value of money as a medium of exchange and as a unit of account
less
*6 monetary policy goals* 1. Price Stability in a market economy, inflation makes prices _______ useful as signals for resource allocation
lower
*6 monetary policy goals* 2. high employment unemployed workers and underused factories and machines _____ an economy's output
financial distress
*6 monetary policy goals* 2. high employment unemployment causes ________ and decreases self-esteem for workers who lack jobs
economic growth
*6 monetary policy goals* 3. _______________: increases in the economy's output of goods and services over time
high employment
*6 monetary policy goals* 3. economic growth --- depends on ________--> businesses are likely to grow by investing in new plant and equipment that raise profits, productivity, and workers' incomes
stability
*6 monetary policy goals* 4. _______ of financial markets and institutions--makes possible the efficient matching of borrowers and savers
1987 9/11
*6 monetary policy goals* 4. stability of financial markets and institutions Feds attention to stability was shown by its interventions following the stock market crash of _____ and ____
plan
*6 monetary policy goals* 5. interest rate stability- instability in rates make it hard for firms to _____ investments in plant and equipment and make households more hesitant about long-term investments in houses
economic growth
*6 monetary policy goals* ______________--provides only course of sustain real increases in households incomes
term deposit facility
During the financial crisis, the Fed introduced 2 new policy tools connected with bank reserve account that were still active at the end of 2012: __________--April 2010, fed offers banks the opportunity to purchases term deposits
periodic auctions
During the financial crisis, the Fed introduced 2 new policy tools connected with bank reserve account that were still active at the end of 2012: Term deposit facility--offered through ________
discount policy
Fed Reserve Act of 1913 expected _________ to be the Fed's primary tool
hyperinflation
__________--damages economy's productive capacity
monetary policy
_____________ has the overall aim to advance economic well-being of the population
federal funds rate
_____________: the interest rate that banks charge each other on very short-term loans
Discount loans available to health banks which can be used for any purpose are called A) primary credit. B) secondary credit. C) seasonal credit. D) repo loans.
a
Dynamic open market operations A) are aimed at achieving changes in monetary policy. B) are used much more frequently than defensive open market transactions. C) are used to offset disturbances to the monetary base. D) make it easy to deduce the Fed's intentions for monetary policy.
a
Everything else held constant, in the market for reserves, decreases in the interest rate paid on excess reserves affect the federal funds rate a) when the funds rate equals the interest rate paid on excess reserves. b) when the funds rate is below the discount rate. c) when the funds rate is below the interest rate paid on excess reserves. d) when the funds rate equals the discount rate.
a
Expansionary monetary policy consists of all of the following EXCEPT A) open market sales. B) lower interest rates. C) increased monetary base. D) increased money supply.
a
In order to meet the target of higher federal funds rate, the Fed would normally A) conduct open market sales. B) conduct open market purchases. C) increase the discount rate. D) increase reserve requirements.
a
John Smith leaves his job in New York to go to California in hopes of finding a better one. If John Smith is unemployed while searching for a job in California, economists would consider him to be A) frictionally unemployed. B) structurally unemployed. C) cyclically unemployed. D) naturally unemployed.
a
Primary credit is only a backup source of funds for health banks since a) the primary credit rate is set above the federal funds rate. b) restrictions as to its use limit its benefits. c) the secondary credit rate pays 0.5% more. d) banks must seek funds from other sources prior to requesting a discount loan.
a
Which of the following is NOT considered to be a goal of monetary policy? A) fair wages B) high employment C) economic growth D) price stability
a
In the federal funds market diagram, an open market sale by the Fed A) shifts the reserve supply curve to the right. B) shifts the reserve supply curve to the left. C) decreases the federal funds rate. D) increases the volume of federal funds traded.
b
Inflation is an economic problem because it A) leads inevitably to unemployment. B) makes prices less useful as signals for resource allocation. C) leads to recession. D) results in rapid increases in the money supply.
b
Suppose there is an increase in demand of reserves in the federal funds market. If the Federal Reserve wishes to keep the effective federal funds rate close to the target level, then the appropriate action for the Federal Reserve to take is a ________ open market ________, everything else held constant. A) defensive; sale B) defensive; purchase C) dynamic; sale D) dynamic; purchase
b
The Fed pledged to continue QE3 until: a) it was time to begin QE4 b) real GDP and employment returned to more normal levels c) the financial crisis was over d) inflation got out of control
b
Under which circumstance is the Fed most likely to carry out a defensive open market operation? A) to prevent an increase in inflation B) if a snowstorm results in a delay in check clearing, resulting in an increase in the Federal Reserve float C) to defend the value of the U.S. dollar on the foreign exchange market D) to prevent the negative impact of a demand shock
b
What was the name of the plan, enacted in 2011, in which the Fed bought $400 billion worth of long-term securities while selling $400 billion worth of short-term securities? A) Operation Go Long B) Operation Twist C) QE2 D) QE3
b
When bad storms slow the check-clearing process, float tends to ________ causing the Fed to initiate ________ open market ________. a) decrease; defensive; sales b) increase; defensive; sales c) increase; dynamic; purchases d) decrease; dynamic; purchases
b
How does the Open Market Trading Desk conduct its operations? A) directly with private securities dealers on the floor of the New York Stock Exchange B) directly with private securities dealers on the floor of the Federal Reserve Bank of New York C) over-the-counter electronically with private securities dealers D) by sending its buy and sell orders to the U.S. Treasury for execution
c
If the Fed desired to reduce the federal funds rate, a) it would conduct an open market purchase, reducing reserve demand. b) it would conduct an open market sale, reducing reserve supply. c) it would conduct an open market purchase, increasing reserve supply. d) it would conduct an open market sale, increasing reserve demand
c
In the market for reserves, a lower interest rate paid on excess reserves A) decreases the supply of reserves. B) increases the supply of reserves. C) decreases the effective floor for the federal funds rate. D) increases the effective floor for the federal funds rate.
c
In the market for reserves, if the federal funds rate is between the discount rate and the interest rate paid on excess reserves, an increase in the reserve requirement ________ the demand for reserves, ________ the federal funds rate, everything else held constant. A) decreases; lowering B) increases; lowering C) increases; raising D) decreases; raising
c
Most economists believe that a zero rate of unemployment A) is obtainable with the correct monetary policy. B) would result in a better functioning economy. C) is inconsistent with a well-functioning economy. D) is obtainable only if the inflation rate is also zero.
c
The policy directive from the FOMC is carried out by A) the presidents of the district banks. B) the presidents of commercial banks that are members of the Federal Reserve System. C) the account manager at the Federal Reserve Bank of New York. D) private dealers in the bond market.
c
The primary discount rate is kept ________ the federal funds rate because the Fed prefers that ________ A) 1% below; banks borrow reserves from each other. B) 0.5% below; banks borrow reserves from the Fed. C) 0.5% above; banks borrow reserves from each other. D) 1.25% above; banks borrow reserves from the Fed.
c
What is one of the goals of Fed's asset purchase program (QE)? A) to increase short-term interest rates B) to reduce short-term interest rates C) to reduce long-term interest rates D) to increase long-term interest rates
c
When Ben Bernanke referred to the exit strategy of the Fed, he was referring to: A) his plans to retire as chair of the Fed B) when the Fed would stop implementing monetary policy C) the process by which the Fed would shrink its balance sheet D) increasing the federal funds rate back to where it was prior to the financial crisis
c
Which of the following statements is correct? a) The discount rate is generally below the federal funds rate. b) The discount rate is generally equal to the federal funds rate. c) The discount rate is generally above the federal funds rate. d) There is no general pattern to the relation between the discount rate and the federal funds rate.
c
Which of the following monetary policy tools is more effective when the economy faces the interest rate zero-lower-bound problem? A) Open market operation B) Discount policy C) Required reserve ratio D) The Fed's liquidity provision
d
money multiplier
until the financial crisis of 2007-2009, Fed primarily relied on 3 monetary policy tools: reserve requirements Ratio---is a determinant of the _________ in the money supply process
demand supply
the federal funds rate is determined by the _________ and _________ for reserves in the federal funds market
federal funds rate
prior to the financial crisis of 2007-2009, the focus of Fed policy was setting a target for the _________.
demand
Banks ___________ reserves both to meet their legal obligation to hold required reserves and because they may wish to hold excess reserves to meet their short-term liquidity needs
lower
Demand for Reserves: The higher the interest rate, the _______ the quantity of loans demanded
increases
Demand for Reserves: as the federal funds rate increases, the opportunity cost to banks of holding excess reserves _________ because the return they could earn from lending out those reserves goes up
downward
Demand for Reserves: as the federal funds rate increases, the quantity of reserves will be _________ sloping
floor
Demand for Reserves: the interest rate that the Fed pays on reserves sets a ___________ for the federal funds rate
interest on reserve balances
During the financial crisis, the Fed introduced 2 new policy tools connected with bank reserve account that were still active at the end of 2012: __________: October 2008, for the first time Fed paid interest on banks' required and excess reserves
open market operations
The Fed supplies NON-borrowed reserves, in the form of ______________
discount loans
The Fed supplies borrowed reserves, in the form of _______________
Sally Jones lost her job at a steel company because of a permanent decline in the demand for steel. Sally Jones is considered by economists to be a) structurally unemployed. b) frictionally unemployed. c) cyclically unemployed. d) naturally unemployed.
a
cyclical
_________ unemployment-- associated with business cycle recessions
structural
_________ unemployment: caused by changes in the structure of the economy, such as shifts in manufacturing techniques, increased use of computers, and increases in production of services instead of goods
Which of the following statements is correct? A) The discount rate is generally above the federal funds rate. B) The discount rate is generally below the federal funds rate. C) The discount rate is generally equal to the federal funds rate. D) There is no general pattern to the relation between the discount rate and the federal funds rate.
a
Everything else held constant, in the market for reserves, when the supply for federal funds intersects the reserve demand curve along the horizontal section of the demand curve, lowering the interest rate paid on excess reserves A) increases the federal funds rate. B) lowers the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect of the federal funds rate.
b
How can the Fed reduce the implicit tax on banks resulting from reserve requirements? A) lowering the discount rate B) paying interest on reserves C) reducing the federal funds rate D) increasing the federal funds rate
b
In the federal funds market diagram, an open market sale by the Fed a) decreases the federal funds rate. b) shifts the reserve supply curve to the left. c) shifts the reserve supply curve to the right. d) increases the volume of federal funds traded.
b
restraining
by increasing the rates its pays, Fed can increase the banks' holding of receivers, potentially __________ the banks' ability to extend loans and increase the money supply
Everything else held constant, in the market for reserves, when the federal funds rate is 3%, lowering the discount rate from 5% to 4% A) lowers the federal funds rate. B) raises the federal funds rate. C) has no effect on the federal funds rate. D) has an indeterminate effect on the federal funds rate.
c
Dynamic open market operations a) are used much more frequently than defensive open market transactions. b) make it easy to deduce the Fed's intentions for monetary policy. c) are used to offset disturbances to the monetary base. d) are aimed at achieving changes in monetary policy.
d
Reserve requirements are changed A) more frequently than the discount rate is changed, but less frequently than open market operations are conducted. B) more frequently than the discount rate is changed and more frequently than open market operations are conducted. C) more frequently than open market operations are conducted, but less frequently than the discount rate is changed. D) less frequently than open market operations are conducted and less frequently than the discount rate is changed.
d
Which of the following is considered to be a goal of monetary policy? a) an end to poverty b) fair wages c) a low federal budget deficit d) price stability
d
wider
during the financial crisis, the fed began purchasing a _____ variety of securities to affect long-term interest rates and to support the flow of credit in the financial system
employment of labor and capital
economic well-being arises from efficient _____________ and ______ steady growth in output
quality quantity
economic well-being is determined by the _______ and _______ of goods and services that individuals can enjoy
stable
economic well-being is enhanced by _________ economic conditions
dual mandate
many refer to the Fed's 2 goals (price stability and max employment) as _________
price stability and max employment
the 6 goals of monetary policy can be attained if which 2 goals are met?
actual rate
the __________ is determined by the INTERACTION of demand and supply for bank reserves in the federal funds market
perfectly elastic
the demand curve for reserves becomes horizontal (or ___________) at the interest rate, which is the Fed pays on banks' reserve balances
less
the more funds placed in term deposits, the ______ the bank will have available to expand loans and the money supply
5-6
the natural rate of unemployment is estimated to be ____-____%, well below the rate of 7.7% in the US November 2012
FOMC
the target for the federal funds rate is set at meetings of the __________, which take place eight times a year in washington DC.
cyclical
tools of monetary policy are ineffective in reducing levels of _________ unemployment
bank reserves short term interest rates
until the financial crisis of 2007-2009, Fed primarily relied on 3 monetary policy tools: 1. Open market operations---purchased and sold treasury bills , with the aim of influencing the level of __________ and ____________
open market operations discount policy reserve requirements
until the financial crisis of 2007-2009, Fed primarily relied on 3 monetary policy tools: 1. ______ 2. _______ 3. ______
discount window
until the financial crisis of 2007-2009, Fed primarily relied on 3 monetary policy tools: Discount policy ________--the means which the Fed makes discount loans to banks and serves as the channel to make banks' short-term liquidity needs
discount policy
until the financial crisis of 2007-2009, Fed primarily relied on 3 monetary policy tools: ________--setting the discount rate and the terms of discount lending
price stability
what is the key monetary policy goal?
US treasury
who often originates changes in foreign-exchange policy?
interest rate stability
*6 monetary policy goals* 5. __________-- motivated by political pressures and a desire for stable saving and investing environment
foreign-exchange market stability
*6 monetary policy goals* 6. __________-- aka limited fluctuations in the foreign-exchange value of the dollar
more
*6 monetary policy goals* 6. foreign-exchange market stability Fluctuations in the dollar's value change the international competitiveness of the US industry: a falling dollar makes foreign goods ____ expensive in US
not
*6 monetary policy goals* 2. high employment Fed does _____ seek a 0% rate of employment
auctions; above
During the financial crisis, the Fed introduced 2 new policy tools connected with bank reserve account that were still active at the end of 2012: Term deposit facility-- interest rates are determined by ________ and are slightly ______ rates offered on reserve balances
interest on reserves balances
During the financial crisis, the Fed introduced 2 new policy tools connected with bank reserve account that were still active at the end of 2012: ______---fed gains a greater ability to influence banks' holding of reserve balances
frictional
_________ unemployment: enables workers who have left the labor force to obtain more education/training, raise family, and reentry, to search for positions that maximize their well-being
natural rate (or full-employment of unemployment )
_________ unemployment: when all workers who want jobs have them (except frictional and structural) and the demand and supply of labor is at equilibrium
term deposits
_________: similar to the certificates of deposits that banks offer to households and firms
A Federal Reserve repurchase agreement involves A) an agreement by a bank to repay a discount loan on a specific day. B) an agreement by a dealer to buy back securities she has sold to the Fed. C) an agreement between the Fed and the Treasury for the Fed to purchase a specified amount of Treasury securities. D) an agreement by a commercial bank to make a loan to another bank in the federal funds market.
b
Open market operations A) lack flexibility because only very small purchases or sales may be carried out in any given month. B) lack flexibility because open market purchases cannot easily be offset by subsequent open market sales. C) are more flexible than other policy tools. D) may be carried out only on the third Friday of each month.
c
Sally Jones lost her job at a steel company because of a permanent decline in the demand for steel. Sally Jones is considered by economists to be A) naturally unemployed. B) cyclically unemployed. C) structurally unemployed. D) frictionally unemployed.
c
open market operations
until the financial crisis of 2007-2009, Fed primarily relied on 3 monetary policy tools: ________--the fed's purchases and sales of securities in the financial markets
reserve requirements
until the financial crisis of 2007-2009, Fed primarily relied on 3 monetary policy tools: ________--the fed's regulation requiring that banks hold a certain fraction of their checkable deposits as vault cash or deposits with the Fed
