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29 Cards in this Set
- Front
- Back
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There are ___ Federal Reserve Banks. |
Twelve |
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Of the nine directors of each Federal Reserve Bank, ____ are elected by the member banks. |
Six |
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How long is the normal term in office for a Governor of the Federal Reserve Board |
Fourteen years |
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The _____ appoints a chairman of the Federal Reserve Board of Governors to a ______, ______ term as chairman. |
President of the United States, renewable; four year |
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Under which Fed Chairman did the inflation rate decline the most? |
Paul Volcker |
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Open-market operations are purchases and sales of |
government securities in the secondary market. |
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The interest rate on short-term loans between banks is known as the |
Federal funds rate |
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The Federal Funds rate is the interest rate on |
Short term loans between banks |
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Open-market operations are carried out between the Open Market Desk of the fed and |
Primary government securities dealers. |
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One-half of a percentage point equals _______ basis points. |
50 |
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Each of the following helps the Federal Reserve to be Independent of the federal government except? |
the establishment of the Fed in the Constituition |
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A Federal Reserve policymaker voting to tighten monetary policy is most likely voting for option |
C |
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There is strong evidence that a political business cycle exist for |
Japan |
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When a central bank is not independent, the main economic variable that is affected is |
inflation |
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The Federal Reserve's main source of income is |
Income from interest on the government securities it owns. |
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Central Banks are government authorities in charge of monetary policy which policy? |
The policy that affects the flow of money and credit in the economy. |
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Who does the Federal Reserve directly influence? |
Interest rates, the amount of credit, and the money supply. In which return influence financial markets and aggregate outcomes (output, inflation) |
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What are the (4) objectives of the Federal Reserve System? |
1) Conducts monetary policy (changing the money supply) 2) Supervises and regulates banks 3) Maintains stability in the financial system 4) Provides Services to banks and governments, including operating the payment systems. |
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Federal Reserve System Central Feature |
Central Feature of American Politics is fear of centralized power, this led to resistance against a central bank. However, the absence of a supervisory central banking institution that could act of lender of last resort led to frequent bank panics and bank runs throughout the 19th and early 20th century |
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What year did congress pass the Federal Reserve act? |
1913 that included a series of checks and balances and diffuses monetary policymaking power along regional lines, between private sector and government, and among bankers, business people, and the public |
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The chairman of the Federal Reserve is appointed by who? |
Appointed by the president for renewable 4-year terms. |
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The Board of Governors is appointed by who? |
Appointed by the president for non-renewable 14-year terms. One comes up every two years. Two-term presidents can only get majority (4 of 7) as leaving office |
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How many regional banks are there? |
12 Regional banks, each with its own president and board. Boards have (3) Bankers (Elected by member banks), (3) business leaders (Elected by Banks) (3) Public officials (appointed by Board of Governors) |
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Reserve banks pay their members how much percentage dividends? |
Each reserve bank is a corporation with shares owned by member (the shares pay a 6% dividend) funding comes from fees charged for services and interest income on holding financial securities. Fed must price its services like a private bank |
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What are the major functions of a regional bank? |
Clear Checks Withdrawl damaged currency from circulation Issue new currency Make Discount loans to commercial banks in their district. Evaluate mergers in their district Act as Liasons between the Fed and the business community collect Data and conduct research on local business conditions |
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What are two types of Independence? (Freedom from outside pressure) |
1) Instrument Independence- ability of bank to set the level of monetary policy instruments, like interest rates) 2) Goal Independence-Ability of the central bank to set the objectives of monetary policy |
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What sources does the independence come from? |
1) Legislation - FRA of 1913 and later amendments openly state the responsibilities of the Federal Reserve and draw the limits of its unsupervised authority. 2) Substantial revenues from holding of securities and discount loans make it immune to the appropriate process. However, it is not completely independent since: 1) The Fed was created by Congress, and is not in the constitution, so its activities are subject to change. 2) The president appoints the members of the board of governors |
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Should the Federal Reserve be independent? |
Case for Independence: 1) The politically oriented central bank will add inflationary bias to monetary policy. In particular, politicians tend to pursue: A) Expansionary policies before elections to reduce unemployment and raise output to get reelected. B) Contractionary policies to deal with the adverse long-run consequences of pre-election expansions like high inflation after elections. Independence helps prevent such arbitrary swings in macro outcomes that are welfare reducing |
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Should the Federal Reserve be independent? |
Case AGAINST Independence? 1) Undemocratic to delegate responsibility of monetary policy to an elite group that is accountable to no one. No provision to replace members of Fed if they suck for an extended period. 2) Giving monetary and fiscal policy to the same politicians might improve coordination Empirical Evidence: shows that more independence leads to less inflation and less variability in inflation |
