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