Monetary policy hwk

The money multiplier equals:

1/reserve requirement.

describes the overall or total demand for all final goods and services produced in an economy.

Aggregate

When aggregate demand rises, to avoid __ and return to the long-run equilibrium, we must decrease aggregate demand.

Inflation

Since the words interest and investment both begin with the letter i, we refer to rates as lowercase i and gross as uppercase I.

Interest;invesment

policy affects interest rates charged on loans and paid on savings

Monetary

loans a bank makes, the more revenue it can generate.

More

When aggregate demand falls, to avoid a(n) ___ and return to the long-run equilibrium, we must increase aggregate demand.

Recession/contraction

The interest rate:

The price of money

One of the key interest rates in the economy is called the:

federal funds rate.

Banks can create money by making use of:

fractional reserve banking

The money multiplier is the amount by which a $1 change:

in reserves will change the money supply.

Banks pay their expenses and hope to make a profit by charging:

interest on loans.

When conducting monetary policy, the Fed most often uses:

open market operations.

The actions taken by a country's central bank to contract the money supply and raise interest rates is called a(n)

Contractionary Monetary Policy

When aggregate demand rises, to decrease aggregate demand, we can use a(n)

Contractionary monetary policy

The reserve requirement is the __ percentage of deposits that banks must keep on hand as reserves.

Minimum

policy refers to the Fed's actions to influence the supply of money and credit in the U.S. economy.

Monetary

The Federal Reserve uses __ to keep prices stable and encourage economic growth.

Monetary policies

is the amount by which a $1 change in reserves will change the money supply.

Money Multiplier

A market in which the demand for and supply of money determine an interest rate or opportunity cost of holding money balances is called a(n)

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.

Money market

What is cyclical asymmetry?

The aggregate demand for goods and services is more responsive to contractionary monetary policy than to expansionary monetary policy.

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.

What is spread?

The difference between the interest rate a bank earns on a loan and the interest rate it pays.

The discount rate is set by the

fed

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).

What describes the overall or total demand for all final goods and services produced in an economy?

Aggregate demand

Which of the following does the Fed carefully monitor?

Bank reserves

If the Fed finds that a bank fails to maintain a required level of reserves, what can happen to the bank?

Banking inspectors will make an unwelcome appearance.

Which two items are closely related to the reserve requirement?

Banks reserve and money supply

is a financial instrument that obligates a borrower to repay money with interest to a lender (which may be a government municipality or corporation).

Bond

The federal funds rate is determined by the supply and demand for

BorrowedReserves

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. correct Reason: To decrease the federal funds rate, the Fed will conduct open market operations by buying bonds. This will increase the supply of reserves available, which will decrease the supply of federal funds and decrease the federal funds rate.

In countering inflation,:

Contractionary monetary policy can raise interest rates, decrease gross investment and depress aggregate demand

in aggregate demand will cause the price level to fall and unemployment to rise in the short run.

Decrease

Suppose that the economy is in a long-run equilibrium at a price level of 100 and full-employment real GDP of $500 billion. An expansion occurs resulting from a $50 billion increase in aggregate demand. In order to restore the economy to full employment given a MPC of 0.6, investment would need to:

Decrease by $20 billion

When the Fed raises the target federal funds rate, the money supply will __ and interest rates will__

Decrease/increase

When banks borrow from the Fed, the interest rate they pay is set by the Fed, and it's called the

Discount rate

__reserves (the amount the bank can lend out to earn interest) equal _reserves minus __reserves.

Excess;total; required

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

Expansionary monetary policy

Monetary policy refers to the action of the __ Reserve to influence the supply of money and credit in the U.S. economy

Federal

The interest rate that banks pay one another for borrowing reserves or federal funds overnight so they can meet the reserve requirements set by the Federal Reserve is the:

Federal Funds Rate

The interest rate that helps determine the interest rates charged on other loans is called the:

Federal Funds Rate

is the interest rate that banks pay when borrowing reserves from other banks.

Federal Funds Rate

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

Which of the following does the Federal Reserve Board set a target for?

Federal funds rate

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

To decrease gross investment, the interest rate must

Increase

in aggregate demand will cause the price level to rise and unemployment to fall in the short run.

Increase

When the Fed ___ the federal funds rate target, the money supply decreases and interest rates rise.

Increases

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 payment made to agents that lend or save money expressed as an annual percentage of the monetary amount lent or saved is called the

Interest rate

Monetary policy affects aggregate demand by changing the quantity of __demanded in the economy.

Invesment

Which of the following tools is most commonly used by the Fed to conduct monetary policy?

Open market operations

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

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

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 Requirement (rr)

The federal funds market is the market for borrowing and lending __ between banks.

Reserves

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.

By manipulating the money_ , the Federal Reserve can change_ rates, thus encouraging or discouraging additional investment.

Supply;interest

Which three values are all related so that when one changes so do the others? The dollar value of reserves held by banks, the reserve requirement, and the money supply The dollar value of deposits held by banks, fiscal policy, and the money supply The dollar value of liquid cash with the public, the reserve requirement, and the money supply The dollar value of deposits held by banks, bank reserves, and the money demand

The dollar value of reserves held by banks, the reserve requirement, and the money supply

Which of the following refers to cyclical asymmetry?

The idea that the aggregate demand for goods and services is more responsive to contractionary monetary policy than to expansionary monetary policy.

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.

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

When economists talk about "interest rates" or even "the interest rate," they mean:

all interest rates, since interest rates all tend to move in the same direction.

In countering recession,:

expansionary monetary policy can lower interest rates, increase gross investments and increase aggregate demand

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

specifies the fraction of checkable deposits that a bank must keep in hand.

reserve requirement ratio

If an economy experiences a change in excess reserves, the change in money supply will also depend on

the money multiplier.