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AP Econ Ch 30
Terms in this set (55)
The central bank of the US is known as?
Federal reserve system
The federal reserve system functions as Americas
The principle deference between income and money is that income is a ___ and money is a ___
What is an income number
The immediate impetus for the establishment of the federal reserve system came from which event
4 severe bank panics 1873-1907
Technically, the federal reserve district banks are corporations whose stockholders are the
In reality, commercial banks function most like ____ of the district federal reserve banks
The actual control of the federal reserve system resides in the
Board of governers
How does one become a Members of the Board of Governors of the Fed
Appointed by the president
In making policies about the nations money supply, the federal reserve board operates how?
Operates as an independent entity
The monetary policies carried out by the fed are _____ with fiscal policy
Each federal reserve district bank is a corporation owned by
It's member bank
The principle objective of the federal reserve system is to
Manage the money supply and interest rates
Member banks of the federal reserve system have how much control over the system they "own"? Why?
The federal reserve board of governors are " governed" by whom
In practice, money supply and short-term interest rates are determined by the
Federal open market committee
The Fed is institutionally independent. The major advantage of this is that monetary policy
Is not controlled by politicians
The Fed is institutionally independent a major disadvantage of this is that monetary policy
Is not subject to democratic control as other politics are
Open market operations generally involve the purchase and sales of
Does the Fed have good control over the money supply?
No because of difficulties estimating the size of the excess reserves and cash holding by the public
If the Fed buys a T-bill from the commercial bank how it pay for the T-bill?
It will give the Bank new reserves
Blank is the rate that applies when banks borrow and lend reserves to one another
Federal fund rate
If the Fed sells a T-bill to a commercial bank How will this affect the money supply?
It will decrease money supply
When the Fed wants to expand the money supply to open-market operation it buys what from whom
Government securities from member banks
When the fed purchases government securities from a commercial bank the bank
Receives reserves that can loaned out
Which of the following is the most frequently used tool of monetary policy
The feds purchase and sale of government securities is known as
The Fed conducts an open-market purchase of treasury bills of $10 million. The required reserve ratio is 0.10, what change in the money supply can be expected using the oversimplified money multiplier?
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 oversimplified money multiplier
Assume the required reserve ratio is 20% and the FOMC orders in open-market purchase of $100 million in government securities from member banks. If oversimplified money multipliers assumed in the money supply will
Increased by $500 million
Assume the required reserve ratio is 10% and the FOMC orders and open-market sale $50 million in government securities from member banks. It's oversimplified money multiplier is assumed, the money supply will
Decrease by $500 million
Banks will hold additional access reserves when
Loan to customers look risky and interest rates are low
If the FOMC orders a purchase of government securities from member banks, where does the FOMC get the money to pay for the securities?
It creates money to pay for the securities by adding the purchase amounts to the banks reserve
Why does the Fed having imperfect control over the money supply
Because of the unpredictable changes in the public desire to hold cash and the banks desire to hold reserves
The Fed has which of the following as it's strongest control over the money supply
If the Fed buys $5 million in government bonds, how much will the money supply change
It will increase by more than $5 million
An increase in the reserve supply will cause what in the economy
Will probably cause inflation if the economy is a potential GDP
If the price levels rises, what will happen to the demand for reserves
It will shift outward
Will happen to demand for reserves if real GDP increases
The reserve demand schedule is drawn on a graph that has the quantity of users on the horizontal axis and
The federal funds rate is on the vertical access
Interest rates declined in 2007. What happened to bond prices during this time
If the feds open-market operations expand the money supply, one can expect bond prices to
If the Fed buys more bonds from the public, and increases the price it is willing to pay for the bonds, what will happen to interest-rates
They will fall
If the Fed decides to sell T-bills, it increases the supply of T bills. How will this affect the price of T-bills and the interest rate?
T-bill prices rising interest rates fall
Bank lending and deposits tend to change as interest rates change. Can the Fed counteract this tendency?
Yes. Ability to affect the money supply
If the Fed raises the discount rate, what will be the effect on the money supply
It will decrease the money supply
The discount rate is the rate that the
Fed changes member banks
If the Fed lends to member banks, what happens to reserves and the money supply
If the Fed raises the reserve requirement on deposits from 15% to 20%, but what happened to the money supply
It would decrease
Assume that the banking system has $200 billion in reserves. There are no excess reserves in the system. If there is a requirement is decrease from 10% to 80% will happen to the level of excess reserves in the system?
There will be $40 billion in excess reserves
If the Fed reduces the required reserve ratio
Excess reserves will increase
lower interest rates in the short run
Decrease in real GDP
most sensitive to monetary policy
Under what conditions will the inflationary impact of an expansionary monetary policy be the largest?
When equilibrium real GDP is a potential real GDP
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 aggregate supply curve
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