Chap. 30 Reading IR & Monetary Policy

One of the functions of the central bank is to be a _____________

"lender of last resort"

Which of the following are tools of monetary control that the Fed can use to alter the reserves of commercial banks?

1. open market operations 2. the reserve ratio 3. the discount ratio 4. interest on reserves

The _____ Federal Reserve Banks together constitute the U.S. "central bank," nicknamed the "Fed."

12

Whom are bond markets open to?

All buyers and sellers of corporate and government bonds.

Which of the following actions can the Fed take under expansionary monetary policy to fight a recession?

Buy securities Lower the discount rate Decrease the reserve ratio

Select all that apply. Which are true about monetary policy in the U.S.?

Consists of deliberate changes in money supply Conducted by the Federal Reserve A goal is to maintain price stability Affects interest rates to affect total spending in the economy

When a public company sells government bonds to the Federal Reserve, the public receives a payment check drawn by:

Fed Reserve

The Fed's primary influence is on the money supply and _______.

IR

Which of the following are directly controlled by the Fed in an economy?

IR Money supply

After the mortgage crisis, the Fed planned to impose restrictive monetary policy by using reverse repos. What are the effects of reverse repos?

Increase the federal funds rate.

Which of the following actions did the Fed take in response to the mortgage debt crisis?

Lowered the discount rate. Lowered the Federal funds rate.

___________ may be highly effective in slowing expansions and controlling inflation but less reliable in pushing the economy from a severe recession.

Monetary policy

What has become the dominant component of U.S. national stabilization policy?

Monetary policy has two key advantages over fiscal policy, namely speed and flexibility and isolation from political pressure

Which of the following is a tool that is used by the Fed to alter the money supply?

Paying interest on commercial banks' excess reserves.

Which of the following lags does monetary policy face? Which of the following are lags facing fiscal policy?

Recognition (affects monetary policy because normal monthly variations in economic activity and the price level mean that the Fed may not be able to quickly recognize when the economy is truly starting to recede or when inflation is really starting to rise) Operational (lag of 3 to 6 months affects monetary policy because that much time is required for interest rate changes to have their full impacts on investment, aggregate demand, real GDP, and the price level) recognition lag operational lag administrative lag

Which of the following transactions occur when the Fed buys government bonds from commercial banks?

The Fed increases the reserves of the commercial bank. The commercial bank gives up their security

When the Federal Reserve purchases bonds in the open market from the public, which of the following are elements of the transaction?

The seller gets a payment check to deposit in its bank account. The seller gives up securities to the Federal Reserve Banks. The bank sends the check for collection.

Why do commercial banks lend their excess reserves to other commercial banks?

They can earn interest equivalent to the federal funds rate on the reserves.

The public wants to hold some of its wealth as money for which of the following primary reasons?

To hold it as an asset. To make purchases with it.

Which actions did the Fed plan in order to engage in restrictive monetary policy after the mortgage crisis?

Use reverse repos. Increase the interest paid on reserves at the Fed.

The two main ______ of the Federal Reserve Banks are securities and loans to commercial banks and thrifts.

assets

The Federal Reserve is the largest single holder of U.S. government ____ Bond markets are open to all buyers and sellers of corporate and government ______

bonds

When implementing expansionary monetary policy, the Fed will ______ gov securities policy occurs in recession/unemployment

buy

The supply of money is directly increased when the Fed:

buys government bonds from the public

The Fed requires that the commercial banks hold reserves against their:

checkable deposits

The Federal Reserve mandates banks to deposit a certain percentage of their ______ as required reserves at their regional Federal Reserve Bank.

checking account deposits

Financial assets can be held in the form of corporate stocks, money, or

corporate bonds

Economists say that monetary policy may suffer from ________ asymmetry

cyclical

Which of the following are combined to determine the equilibrium rate of interest?

demand + supply of money

The transactions demand for money varies ____ with nominal GDP The amount of money demanded as an asset varies ____ w/ rate of interest

directly inversely

_________ is the interest rate that the Federal Reserve Banks charge on loans that they grant to commercial banks.

discount rate

In 2007, the Fed lowered the _________ rate and the target for federal ________ rate

discount, funds

Combining the demand for money and the supply of money determines the ______ rate of interest _________ interest rate is the rate at which the amount of money demanded and the amount supplied are equal.

equilibrium

The rate at which the amount of money demanded and the amount supplied are equal is called what?

equilibrium interest rate

By lowering the interest rate to bolster borrowing and spending to increase aggregate demand, the Fed is instituting which type of monetary policy?

expansionary

During a recession, with a negative GDP gap and substantial unemployment, the Fed should institute what type of monetary policy?

expansionary

If the economy faces recession and unemployment, the Fed will initiate ______ also known as "______ money policy."

expansionary monetary policy; easy

The Fed will use open-market operations to buy bonds from banks and the public in order to lower the ______ rate.

federal funds

Banks find it beneficial to loan their excess reserves to other banks because they can earn interest on the loan equivalent to the The Fed will use open-market operations to buy bonds from banks and the public in order to lower the ______ rate.

federal funds rate fed funds

The members of the FOMC assess whether the current Federal funds rate remains appropriate for achieving which of the following?

full employment, low inflation

How are a bank's reserves impacted when the Fed purchases a security from a commercial bank? When Federal Reserve Banks purchase securities from commercial banks/the public, what happens to the lending ability of the commercial banks? (also increases reserves banking system)

increase

One of the more recent tools for the Fed to alter the money supply is paying _________on excess reserves held at the Fed.

interest

Expansionary monetary policy will lower the _________ rate to bolster borrowing and spending, which will increase aggregate _________ and expand real output.

interest, demand

What type of relationship exists between bond prices and interest rates?

inverse

The interaction of aggregate supply and aggregate demand result in which of the following?

levels of employment, output, income

Which of the following actions of commercial banks reduce the money supply?

lower checkable deposits Increasing required reserves

The Fed can manipulate the reserve ratio in order to influence the ability of commercial banks to do what?

make loans

The public wants to hold some of its wealth as ________ to make purchases with it and to hold it as an asset. liquid + no risk of capital loss?

money

Which of the following represent how people might hold their financial assets?

money corporate assets government bonds

The main determinant of the amount of money demanded for transactions is the level of

nominal gdp

When a commercial bank borrows, it gives what to the Federal Reserve Bank? drawn against itself and secured by acceptable collateral

promissory note

______ checkable deposits reduces the supply of ______.

reducing, money

In addition to buying and selling bonds, which other factor can the Fed change to affect the money supply?

repos + reverse repos

The Federal Reserve mandates banks and thrifts to deposit in their regional Federal Reserve Bank a fraction of their checkable deposits as:

required reserves

The Fed can manipulate the ________ in order to directly influence the ability of commercial banks to lend.

reserve ratio

When Federal Reserve Banks buy securities in the open market, commercial banks' ____ are increased

reserves

During times of rising inflation the Fed will undertake _______ monetary policy or "tight money policy."

restrictive

What are the main assets of the Federal Reserve Banks?

securities and loans (to commercial banks)

The demand for money as a medium of exchange is called the

transactions demand for money

The demand for money as a medium of exchange is called the what?

transactions demand for money