Upgrade to remove ads
Macro Economics: Chapter 13 Homework
Terms in this set (52)
Which of the following is the most frequently used tool of monetary policy?
open market operations
A system that requires banks to keep 100 percent reserves
would increase the Fed's ability to control the money supply.
The president has influence on Federal Reserve policy because
he appoints the board members and the chair
An open market purchase of T-bonds by the Fed causes the money supply to
rise and bond prices to rise.
Why does the Fed have imperfect control over the money supply?
Because of unpredictable changes in the public's desire to hold cash and banks' desires to hold reserves.
Does the Fed have good control over the money supply?
No, because of difficulties estimating the size of the excess reserves and cash holdings by the public.
The main purpose of expansionary monetary policy is to
reduce interest rates.
The reason that the Fed does not actively use discount rate policy to control the money supply is because the Fed
does not know how banks will respond to discount rate changes.
Assume that the Fed lowers the required reserve ratio. How will this affect the money supply?
It would increase.
An open market sale of T-bonds by the Fed causes the money supply to
fall and bond prices to fall.
If the Fed buys $5 million in government bonds, how much will the money supply change?
It will increase by more than $5 million.
The Fed conducts an open market sale of Treasury bills of $5 million. If the required reserve ratio is 0.20, what change in the money supply can be expected using the oversimplified money multiplier?
In Figure 13-1, which panel shows the effect of an expansionary monetary policy on the interest rate?
In Table 13-1, the Federal Reserve System has
purchased $10 million in government securities from banks, paying for them with increases in banks' reserves.
In reality, commercial banks function most like ____ of the district Federal Reserve Banks.
What determines the magnitude of the changes in price level when central bank takes monetary policy measures that leads to a change in the aggregate demand?
Slope of the aggregate supply curve
If the Federal Reserve was successful putting downward pressure on interest rates what would be the result on Net Exports?
The Fed is institutionally independent. A major disadvantage of this is that monetary policy
is not subject to democratic control as other policies are.
In its original role as "lender of last resort" the Fed was supposed to
keep the money supply from drying up during financial panics.
Which of the following phrases would be used to describe an income amount?
All of the above are correct.
The central bank of the United States is known as the
Federal Reserve System.
Part of the controversy about Fed independence include(s)
the appropriate role of the Fed in policy making.
The reserve demand schedule is drawn on a graph that has the quantity of reserves on the horizontal axis and
the federal funds rate is on the vertical axis.
Which of the following phrases indicates that income is being spoken of?
from January 1 to March 30
Assume the required reserve ratio is 20 percent and the FOMC orders an open market purchase of $100 million in government securities from member banks. If the oversimplified money multiplier is assumed, then the money supply will
increase by $500 million.
The quantity of reserves supplied increases as interest rates rise because
banks find it more profitable to loan out excess reserves to other banks.
Interest rates declined in 2007. What happened to bond prices during this time?
If the Fed sells a U.S. Treasury bill to a member of the public, the banking system has
less reserves and the money supply tends to fall.
Proponents of Fed independence maintain that
independence permits objective decisions not based on politics.
The Federal Reserve System was established by Congress in 1914
because of the need for a central bank.
The original goal of the Fed's founders was to prevent the
supply of money from decreasing during downturns.
The Fed conducts an open market purchase of Treasury bills of $10 million. If the required reserve ratio is 0.10, what change in the money supply can be expected using the oversimplified money multiplier?
Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?
When equilibrium real GDP is at potential real GDP.
If the Fed raises the discount rate, what happens to reserves and the money supply?
If the Fed decides to buy T-bills, it increases the demand for T-bills. How will this affect the price of T-bills and the interest rate?
T-bill prices rise and interest rates fall.
The principal objective of the Federal Reserve System is to
help stabilize the economy through monetary policy.
The Fed relies on open market operations, which work
through the banking system by affecting their reserves.
Assume that the banking system has $200 billion in reserves. There are no excess reserves in the system. If the reserve requirement is decreased from 10 percent to 8 percent, what will happen to the level of excess reserves in the system?
There will be $40 billion in excess reserves.
The Fed's principal objective is to
manage the money supply and interest rates.
When the Federal Reserve System was first established, its founders intended the Fed to
provide protection against financial panics by acting as the lender of last resort.
The Fed is institutionally independent. A major advantage of this is that monetary policy
is not controlled by politicians.
The correct chain of causation illustrating the changes caused by monetary policy is
money, interest rates, I, C + I + G + (X − IM).
Banks will hold additional excess reserves when
loans to customers look risky and interest rates are low.
In Figure 13-1, which panel shows the effect of inflation on the interest rate?
The quantity of reserves demanded decreases as the federal funds rate rises because
the opportunity cost of holding excess reserves increases as the federal funds rate rises.
If the Fed sells a T-bill to a commercial bank, how will this affect the money supply?
It will decrease the money supply.
When interest rates decrease, banks will normally
decrease lending, deposits, and the money supply.
In practice, money supply and short-term interest rates are determined by the
Federal Open Market Committee.
When the Fed purchases government securities from a commercial bank, the bank
receives reserves that can be loaned out.
In Figure 13-1, which panel shows the effect of a recession on the interest rate?
Bank lending and deposits tend to change as interest rates change. Can the Fed counteract this tendency?
Yes, through its ability to affect the money supply
When interest rates increase, banks will normally
increase lending, deposits, and the money supply.
THIS SET IS OFTEN IN FOLDERS WITH...
Macroeconomics Chapter 11
Chapter 9 Economics
Chapter 30—Monetary Policy: Conventional and Uncon…
Macro Econ, 2nd Mitderm
YOU MIGHT ALSO LIKE...
Chapter 13 Homework
AP Econ Ch 30
Chapter 12 13 16
OTHER SETS BY THIS CREATOR
Macro Economics: Chapter 20 Homework
Macro Economics: Chapter 17 Homework
Macro Economics: Chapter 16 Homework
Macro Economics: Chapter 11 Homework
OTHER QUIZLET SETS
Lesson 10-11 Articulations
A&P Final Exam: Chapter 5