• Shuffle
    Toggle On
    Toggle Off
  • Alphabetize
    Toggle On
    Toggle Off
  • Front First
    Toggle On
    Toggle Off
  • Both Sides
    Toggle On
    Toggle Off
  • Read
    Toggle On
    Toggle Off
Reading...
Front

Card Range To Study

through

image

Play button

image

Play button

image

Progress

1/64

Click to flip

Use LEFT and RIGHT arrow keys to navigate between flashcards;

Use UP and DOWN arrow keys to flip the card;

H to show hint;

A reads text to speech;

64 Cards in this Set

  • Front
  • Back

What financial services does the Fed provide commercial banks?

Holding reserves, clearing checks and providing coins and currency.

What are Federal Funds?

Loans between banks

What happens when the Fed increases the reserve requirement?

Banks lend less of their deposits which leads to a decrease in the money supply.

When banks borrow money from the Fed to meet their reserve requirements, what is the interest rate charged known as?

The discount rate

What are the Federal Reserve's main assets?

U.S. Treasury Bills

What happens to the majority of the interest on the Fed's assets?

They are returned to U.S. taxpayers.

If the Federal Reserve conducts open market purchases, what would happen to the money supply?

It would increase.

To a bank, are checkable deposits an asset or a liability?

Liability

When the Fed buys/sells U.S. treasury bills, how much money is added/removed to the money supply?

The amount they purchased X 1/reserve ratio

If the central (national) bank neither buys nor sells bonds, what will happen to its interest rate?

It will move toward equilibrium.

What does it mean when long term interest rates are higher than short term interest rates?

It implies that short-term interest rates are expected to rise

How does monetary policy affect the GDP and price level?

By changing aggregate demand

By increasing the money supply and decreasing interest rates, what will happen to aggregate demand?

It will move to the right

When the central bank announces the inflation rate that it is trying to achieve and sets policy to reach that rate, what is it using?

Inflation targeting

How should the Federal Reserve deal with a recessionary gap?

By conducting expansionary monetary policy by increasing the money supply.

What is the interest rate determined by in the long term?

The loanable funds market

If actual and potential output are equal, and the FEd increases the money supply so that actual output exceeds potential output, what will happen to nominal wages?

They will eventually increase

When actual and potential output are equal and the Fed decreases the money supply, what happens to the short run aggregate demand?

It will likely decrease

What does an increase in the money supply do to output in the short and long-run?

Increases output in the short run and doesn't change output in the long-run.

An increase in the money supply is most likely to do what to aggregate demand?

Shift it to the right

What is the short run effect of increasing the money supply in regards to aggregate price level and real output?

Aggregate price level and real output both increase.

What are the long run effects of monetary expansion on the aggregate price level and real GDP?

Aggregate price level will increase but real GDP will be unaffected.

What do expansionary monetary policies do to interest rates in the short and long run?

Interest rates fall in the short run and remain unchanged in the long run.

How many regional federal reserve banks are there?

12

What can the Federal Open Market Committee do to contract the money supply?

Sell Treasury Bills on the open market.

When the central bank purchases treasury bills, how do we know how it will effect the money supply?

It will increase by the 1/reserve ratio X the amount they purchased.

What is the federal funds rate?

The bank one bank charges another bank for funds that are loaned.

How can the Federal Reserve increase the monetary base?

Purchase U.S. Treasury bills via open-market operations

Who carries out open-market operations?

The Federal Reserve

Who do open-market transactions take place with?

Commercial banks

What is the purpose of open-market operations?

To influence the money supply and interest rates

U.S. Treasury bills held by the Federal Reserve are assets and liabilities to who?

Assets of the Fed and liabilities of the government.

What will happen to short term interest rates if the Fed sells Treasury Bills on the open market?

Short term interest rates will rise.

What can the Federal Reserve do in regards to Treasury Bills in order to close a recessionary gap?

Buy Treasury Bills on the open market

Why would the Fed pursue contractionary monetary policy?

When it believes that current real GDP is above the level of potential real GDP

The Fed lowering its target for the federal funds rate is an indicator of what kind of monetary policy?

Expansionary monetary policy

Monetary policy is the main tool of what?

Stabilization policy

In the long run, how does the money supply affect the equilibrium interest rate?

It doesn't

What annual range for inflation is typically chosen by the central banks of major nations?

2-3%

When the Fed buys anything, what happens to the reserves?

They increase

Seignorage equation

Money supply x monthly change

Real seignorage equation

Seignorage/Price Level

How do you know when an output gap is positive or negative?

It is positive if the unemployment rate is below the natural rate, it is negative if the unemployment rate is above the natural rate

Balance of payments on goods and services

The difference between exports and imports during a given period

Balance of payments on financial account

The difference between sales of assets to foreigners and purchases of assets from foreigners

Basic Rule (Accounts)

The current account must equal the financial account. Sources of cash must equal the uses of cash

Where are currencies traded?

The foreign exchange market

What is an exchange rate?

The prices at which currencies trade



Real exchange rate

Pesos per dollar X Pus/Pmex

Floating exchange rate

The exchange rate is allowed to move with the market

How can a government manipulate its currencies' price?

Buying or selling currency on the foreign exchange market


Maintain stocks of foreign currency to buy their own currency on the FEM


Licensing systems that limit the right of individuals to buy foreign currency.

Foreign exchange controls

Licensing systems that limit the right of individuals to buy foreign currency. These controls normally increase the value of a currency

What can a country do to fix its currency ABOVE equilibrium?

By its own currency and sell dollars



What can a country do to fix its currency BELOW equilibrium?

Sell its own currency and buy dollars

What will reducing the supply of a currency in the foreign exchange market do to its value?

It will increase it

How did China's export success affect its current account?

It led to a large surplus in its current account.

What attracted non-Chinese investors to China?

High growth and investment opportunities.

What does the reconstruction Finance Corporation have authority to do?

Make loans to banks in order to stabilize the banking sector.

What year was the Federal Reserve created?

1913

The Glass-Steagall Act separated banks into what two categories?

Commercial and Investment

Commercial Banks

Depository banks that accepted deposits and were covered by deposit insurance

Investment Banks

Banks which engaged in creating and trading financial assets but were not covered by deposit insurance because their activities were considered riskier.

Monetary Base

The sum of currency in circulation and bank reserves

Potential Output

The level of real GDP the economy would produce if all prices, including nominal wages, were fully flexible.