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24 Cards in this Set
- Front
- Back
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What is the Federal Reserve Bank (FED), how many districts are there, and where doe the FED operate out of?
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The FED if the bank of last resort. There are 12 districts and each has its own Federal Reserve Bank (FRB). The FED operates out of Washington D.C.
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The president appoints how many members and for how long?
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The president appoints 7 members appointed to 14 year nonrenewable terms.
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How long is the director appointed for
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a 4 year renewable term
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The FED manipulates the money supply in 3 ways by monetary policies, which are what
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Open market operation ( buying and selling treasury securities on the open market), Changes in the discount rate( the rate they charge banks who borrow money from them), and change in the reserve requirement (the % of a banks deposits they have to keep on hand)
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How will open market operations affect the monetary policies?
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Treasuries are bought during a recession to increase the money supply, and they are sold during an expansion to decrease the money supply
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How does the change in discount rates effect the monetary policies
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They meet every 6 weeks and decide to raise the discount rate to decrease the money supply during an expansion, and they lower the discount rate during a recession to increase the money supply
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How does changing the reserve requirement effect monetary policies
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they raise the reserve requirement during an expansion to lower the money supply and they lower the reserve requirement during a recession to increase the money supply
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What are the 4 goals of monetary policy
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1. price stability 2. high employment 3. economic growth 4. stability of financial markets and institutions
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Give an example of the money multiplier and how money is created
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1. FED buys a $10,000 T-note from John (increase money supply by 10,000) 2. John deposits 10,000 into his bank account(assume reserve requirement is 10%) 3. John's bank lends 9,000$ to Mark (increase money supply by $9,000) 4. Mark spends $9,000 to buy a chevy. 5. chevy dealership deposits 9,000 into bank account ( increases money supply by 8,100). Simple money multiplier= 1/rr in the example, 10,000 ( 1/.1)=100,000
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What are the fiscal policy levers for the FED
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Tax rates, government spending, and automatic stabilizers( UE benefits and taxes)
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How do tax rates effect the discretionary fiscal policies
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Increases in taxes lower the investment spending by businesses, and decreases in taxes increase investment spending by businesses
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How does government spending effect the discretionary fiscal policies
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an increase in spending will increase economic activity, and a decrease in spending will decrease economic activity.
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What is the basics of the supply and demand
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The higher the price the less demand and the lower the price the greater the demand
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What is the equilibrium price
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it is when quantity supplied= quantity demanded. There is no surplus or shortage
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What is the change in demand due to
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anything but the price of the product.
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What is the change in quantity demand due to
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change in demand due to the price. A reduction in supply would increase the price. The only thing that can cause a change in price even if the demand for a product did not go up is if the supply went up
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What are the determinants of demand
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Income, Related goods( substitutes and complements), number of buyers, Tastes (clothing "fads"), and Expectations.
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What are the determinants of supply
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expectations, number of sellers, technological changes (increase supply), input prices ( production of other goods) , and substitute prices of input goods (price of substitute inputs)
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What are supply shocks
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changes in supply due to war, weather, etc...
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What is a consumer surplus
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people who would have paid more but did not have to
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What is a producer surplus
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suppliers who would have sold the product for less, but didn't have to.
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What does a price floor create
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surplus, example is minimum wage
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What dose a price ceiling create
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a shortage example is apartments.
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What happens if there is a shift in supply
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there is a change in the quantity demanded.
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