Macro Ch 15
How many times a year does the FOMC meet?
8
True or False? The federal funds rate is the interest rate the Fed charges banks to borrow money
FALSE, it is the rate banks charge EACH OTHER to borrow money in order to meet the reserve requirement
What is a Bank Run?
a situation in which many depositors simultaneously decide to withdraw money from a bank
To increase the money supply, the Fed (increases/decreases) the discount rate. This (encourages/discourages) banks to borrow from the Fed, enabling them to increase _____, increasing the money supply.
decreases; encourages; loans
Expansionary monetary policy is the Federal Reserve's policy of (increasing/decreasing) interest rates to (increase/decrease) real GDP
decreasing; increase
The federal deposit insurance corporation or FDIC, guarantees _____, so bank runs are rare
deposits
When banks need to borrow money to meet the reserve requirement, they borrow from banks that have ____ reserves
excess
When the Fed decreases the reserve requirement, some of the reserves the bank had are now excess, so banks (increase/decrease) loans, increasing the money supply
increase
Lower interest rates (increase/decrease) Consumption by (encouraging/discouraging) households to borrow and purchase consumer durables and by (encouraging/discouraging) households to save
increase; encouraging; discouraging
Lower interest rates (increase/decrease) Investment by 1) (encouraging/discouraging) firms to borrow to purchase capital and adopt new technology 2) (encouraging/discouraging) households to acquire mortgages to purchase new homes 3) (increasing/decreasing) the return to bonds, which (encourages/discourages) savers to purchase stocks instead, (increasing/decreasing) stock prices, which (encourages/discourages) firms to sell additional shares of stock
increase; encouraging; encouraging; decreasing; encourages; increasing; encourages
When people sell treasury securities, the banks reserves (increase/decrease), so loans, checking account deposits and the money supply all (increase/decrease)
increase; increase
Higher interest rates in the US mean that foreign countries (increase/decrease) their demand for US interest bearing assets, which (increases/decreases) the demand for US dollars, which causes the value of the dollar (exchange rate) to (increase/decrease), which makes US exports (cheaper/more expensive) and US imports (cheaper/more expensive), causing US Net Exports to (increase/decrease)
increase; increase; increases; increase; more expensive; cheaper; decrease
Lower interest rates increase consumption, investment and net exports, causing AD to shift (right/left)
right
When banks can't borrow from other banks, they borrow from ____
the Fed
Open market operations are the buy and selling of ________
treasury securities
How many Federal Reserve districts are there in the US?
12
What is a bank panic?
A situation in which many banks experience runs at the same time
What are discount loans?
Loans the Fed makes to banks
What three monetary policies does the Fed use to manage the money supply?
Open Market operations, discount policy, and reserve requirements
What are the Fed's 4 macroeconomic policy objectives?
Price stability, high employment, stability of financial markets and institutions, economic growth
Who controls open market operations?
The FOMC, or Federal Open Market Committee
What is the central bank of the United States?
The Federal Reserve (The Fed)
What is monetary policy?
The actions the Federal Reserve takes to manage the money supply and interest rates to purse macro-economic policy objectives
What is the Discount Rate?
The interest on Discount Loans
True or False? Fractional Reserve Banking System is a banking system in which a bank keeps less than 100% of deposits as reserves
True
True or false? Changing the reserve requirement is rare because it causes disruptions in the banking industry
True
True or false? When the federal funds rate falls or rises, other interest rates move in the same direction.
True
A bank handles a bank run by _____
borrowing money from other banks
Higher interest rates (increase/decrease) Investment by 1) (encouraging/discouraging) firms to borrow to purchase capital and adopt new technology 2) (encouraging/discouraging) households to acquire mortgages to purchase new homes 3) (increasing/decreasing) the return to bonds, which (encourages/discourages) savers from purchasing stocks instead, (increasing/decreasing) stock prices, which (encourages/discourages) firms to sell additional shares of stock
decrease; discouraging; discouraging; increasing; discourages; decreasing; discourages
Higher interest rates (increase/decrease) Consumption by (encouraging/discouraging) households to borrow and purchase consumer durables and by (encouraging/discouraging) households to save
decrease; discouraging; encouraging
When the FOMC sets a higher target for the federal funds rate, they want to (increase/decrease) the money supply, so they order the trading desk at the Federal Reserve Bank of New York to (buy/sell) treasury securities.
decrease; sell
Raising the reserve requirement (increases/decreases) the money supply
decreases
When people buy treasury securities, they remove money from banks, which (increases/decreases) banks reserves, (increasing/decreasing) loans, (increasing/decreasing) checking account deposits and (increasing/decreasing) the money supply
decreases; decreasing; decreasing; decreasing
Lower interest rates in the US mean that foreign countries (increase/decrease) their demand for US interest bearing assets, which (increases/decreases) the demand for US dollars, which causes the value of the dollar (exchange rate) to (increase/decrease), which makes US exports (cheaper/more expensive) and US imports (cheaper/more expensive), causing US Net Exports to (increase/decrease)
increase; increases; decrease; cheaper; more expensive; increase
To decrease the money supply, the Fed (increases/decreases) the discount rate. This (encourages/discourages) banks to borrow from the Fed and encourages banks to increase their ________ to ensure that they meet the reserve requirement. So, banks do not make as many ____ , decreasing the money supply
increases; discourages; excess reserves; loans
Contractionary monetary policy is the Federal Reserve's policy of (increasing/decreasing) the interest rates to reduce inflation
increasing
The discount rate is always (larger/smaller) than the federal funds rate to encourage banks to borrow from other banks before the Fed
larger
higher interest rates decrease consumption, investment and net exports, causing AD to shift (right/left)
left
When the FOMC decides to increase the money supply, they set a (higher/lower) target for the federal funds rate, and the Fed (buys/sells) treasury securities
lower; buys