Macroeconomics Final

Value of the dollar

1/price level

Using the concept of arbitrage, when the interest on reserve balances rate is lower than the federal funds rate, how will bank likely responds?

Banks will withdraw from their account at their Federal Reserve Bank and lend the funds in the federal funds market.

Which best describes how interest on reserve balances serves as a reservation rate?

Because interest on reserve balances is a risk-free option, banks should not be willing to lend their funds for less than they can earn on their reserve balances.

The Federal Reserve System consists of which of the following?

Board of Governors and the 12 Federal Reserve Banks

money supply (M1)

Currency in circulation + Saving Deposits + Checkable Deposits

Which monetary policy tool serves as a ceiling for the federal funds rate?

Discount rate

In the U.S. economy, the money supply is controlled by the

Federal Reserve System.

Which monetary policy implementation tool is the primary tool the Fed uses to steer the federal funds rate into the FOMC's target range?

Interest on reserve balances

Which best describes how the FOMC conducts monetary policy during an inflationary period to achieve its price stability objective?

It increases the target rate range for the federal funds rate.

Which best describes how the FOMC conducts monetary policy to increase employment during a recession to achieve its maximum employment objective?

Lower the target range for the federal funds rate and simultaneously decrease the interest on reserve balances rate, overnight reverse repurchase agreement offering rate, and discount rate.

Which monetary policy tool is a supplementary tool that sets a floor for the federal funds rate?

Overnight reverse repurchase agreement facility

What are the Fed's dual mandate goals?

Price stability and maximum employment

What role do open market operations play in monetary policy?

The Fed uses open market operations to ensure that the level of reserves remains ample.

If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as

a medium of exchange.

If you are estimating your total expenses for school next semester, you are using money primarily as

a unit of account.

Compared to fiscal policy, monetary policy has a much shorter

administrative lag.

A contractionary monetary policy is designed to shift the

aggregate demand curve leftward.

The members of the Federal Reserve Board

are appointed for 14-year terms.

In the United States, the money supply (M1) includes

coins, paper currency, checkable and savings deposits.

Which of the following is a monetary policy intended to combat a recession?

decrease the federal funds target range to shift the aggregate demand curve rightward

Other things equal, a contractionary monetary policy during a period of demand pull inflation will

increase interest rates, reduce investment, and reduce aggregate demand

The value of money varies

inversely with the price level.

The amount of money reported as M2

is larger than the amount reported as M1.

Currency held in the vault of First National Bank is

not counted as part of the money supply.

Which of the following is a tool of monetary policy?

overnight reverse repurchase agreement facility

The discount rate is the rate that banks pay for loans from

the Fed.

The interest rate that banks charge other banks for loans

the federal funds rate.

When the FOMC conducts monetary policy, it sets the target range for

the federal funds rate.

The money supply is backed by

the government's ability to control the supply of money and therefore to keep its value relatively stable.

What is not one of the advantages of monetary policy over fiscal policy?

the lack of any timing lags

Research for industrially advanced countries indicates that

the more independent the central bank, the lower the average annual rate of inflation.

The Federal Open Market Committee (FOMC) is made up of

the seven members of the Board of Governors of the Federal Reserve System along with the president of the New York Federal Reserve Bank and four other Federal Reserve Bank presidents on a rotating basis.