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indicates the change in price for a fixed set of merchandise and services intended to represent what a typical consumer might purchase over a given period. It is compiled monthly by the U.S. Department of Labor's Bureau of Labor Statistics. By keeping track of the rate of change in the CPI, the Fed can get an accurate measure of inflation.
Consumer Price Index (CPI)
The GDP is the total of all of the goods produced in the United States, regardless of who owns them or the nationality of the producers. The measurement is produced quarterly and accurately represents national output, meaning it uses real terms so inflation doesn't distort the numbers. It is used as an indicator of the performance and growth of the economy.
Real Gross Domestic Product(GDP)
housing is very sensitive to interest rates, this indicator is tells the FOMC how financial changes are affecting consumers. Housing starts are an estimate of the number of housing units that started construction in a given period. The report is produced monthly.
Housing Starts
includes the total number of payroll jobs that are not in the farming business. It is produced each month by the U.S. Department of Labor's Bureau of Labor Statistics and also includes information about the total number of hours worked and hourly wages earned by workers. It is helpful to the FOMC as an economic indicator because it indicates the pace (or changes in the pace) of economic growth. The average hourly earnings number also shows trends in supply and demand.
Nonfarm Payroll Employment
Standard & Poor Index shows the FOMC the changes in price in a very wide variety of stock. S&P compiles the index daily. The value of watching this index as an indicator of the economy is that it often indicates the confidence consumers and businesses have in the economy. If the market is rising, then investments and spending will rise; if the market is low or falling, then investments and spending will also slow down.
S&P Stock Index
measures industrial output both by product and by industry. It is compiled by the Board of Governors each month and is useful because it tells the FOMC about the current growth of the Gross Domestic Product. By understanding the level of capacity utilization, the FOMC can understand how well resources are being utilized. All of this can indicate future changes in the rate of inflation.
Industrial Production/Capacity Utilization
a total of all merchandise sold by retail merchants in the United States. The numbers are presented in dollar amounts, and are adjusted for seasonality but not for inflation. The U.S Department of Commerce produces this report each month. This measurement tells the FOMC how much consumers are buying. This is called the personal consumption expenditure and indicates future growth or lags in the economy.
Retail Sales
a measurement of the total sales and inventories for the manufacturing, wholesale, and retail sectors. This report is compiled monthly by the U.S. Department of Commerce and can be a good indicator of growth or slow downs in the economy because it shows the level of inventory and whether it is moving or not. Inventory that isn't moving indicates a future slow down; inventory that is moving may indicate an increase in future production.
Business Sales and Inventories
changes in car sales can account for a large portion of the change in the GDP from quarter to quarter, this measurement has to be taken into account. The report is compiled by Ward's Automotive Reports and the American Automobile Manufacturer's Association, and seasonally adjusted numbers are generated by the U.S. Department of Commerce and the Bureau of Economic Affairs.
Light-Weight Vehicle Sales
This is simply the current market rate for U.S. Treasury bonds that will be maturing in 10 years. This is good as an indicator because mortgage rates tend to follow it. Changes in mortgage rates, in turn, indicate future changes in the housing industry.
Yield on 10-year Treasury Bond
there is often a link between the supply of money and the growth of the GDP, this measurement is yet another indicator that the FOMC looks to when making decisions about monetary policy. The report is produced by the Board of Governors weekly and monthly.
M2
Economic indicators
Consumer Price Index (CPI)
Real Gross Domestic Product (GDP)
Housing Starts
Nonfarm Payroll Employment
S&P Stock Index
Industrial Production/Capacity Utilization
Retail Sales
Business Sales and Inventories
Light-Weight Vehicle Sales
Yield on 10-year Treasury Bond
M2
Economic indicators 3 grps
categorized as leading, coincident, or lagging
Leading
indicators anticipate the direction in which the economy is going.
Coincident
indicators tell the Fed about the economy's current status.
four phases of the business cycle are:
1.Expansion or recovery
2.Peak
3.Contraction or recession
4.Trough
LEADING INDICATORS
1. Average weekly hours, manufacturing:
2. Average weekly initial claims for unemployment insurance:
3. Building permits, new private housing units:
4. Stock prices, 500 common stocks:
5. Index of consumer expectations:
6. Manufacturers' new orders, consumer goods and materials:
7. Manufacturers' new orders, nondefense capital goods:
8. Vendor performance, slower deliveries diffusion index:
9. Money supply:
10. Interest rate spread, 10-year Treasury bonds less federal funds:
COINCIDENT INDICATORS
1. Employees on nonagricultural payrolls:
2. Personal income less transfer payments:
3. Index of industrial production:
4. Manufacturing and trade sales:
LAGGING INDICATORS
1. Average duration of unemployment:
2. Average prime rate charged by banks:
3. Ratio of manufacturing and trade inventories to sales:
4. Consumer installment credit outstanding to personal income:
5. Change in labor cost per unit of output, manufacturing:
6. Commercial and industrial loans outstanding
7. Change in consumer price index for services:
a measure of the average price level of a fixed basket of goods and services purchased by consumers as determined by the Bureau of Labor Statistics. Monthly changes in the CPI represent the rate of inflation. Core CPI excludes volatile components, i.e., food and energy prices.
Consumer Price Index
reflect the new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods.
Durable goods orders
a measure of total employee compensation costs, including wages, salaries and benefits. This is the broadest measure of labor costs.
Employment cost index
the broadest measure of aggregate economic activity encompassing every measure of the economy, measuring the total value of goods and services produced during a specific period.
Gross domestic product
a measure of the physical output of the nation’s factories, mines and utilities.
Index of industrial production
a weekly compilation of the number of individuals who filed for unemployment insurance for the first time. It predicts trends in the labor market.
Jobless claims
unit sales of domestically-produced cars and light-duty trucks. Figures are good indicators of trends in consumer spending.
Motor vehicle sales
the dollar value of income received from all sources by individuals.
Personal income
consumer purchases of durable goods, nondurable goods and services.
Personal outlays
a measure of the average price level for a fixed basket of capital and consumer goods paid by producers.
Producer price index
measures the difference between exports and imports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.
Trade balance
What does the U.S. Treasury get from the Federal Reserve Banks?
a checking account
As fiscal agent for the U.S. Treasury, which of the following does the Fed not do?
buy government securities directly from the Treasury
The Federal Reserve is responsible for the production of U.S. paper money and coin.
False
Which of the following is not a function that the Fed performs for the Treasury?
nominating a Secretary of the Treasury
Multiplication problem: (The number of Reserve Bank presidents who attend Federal Open Market Committee meetings) times (the number of Federal Reserve presidents who vote on the FOMC at any given time) times (the number of times per year that the FOMC establishes its long-term goals and reports them to Congress) times (the approximate number of weeks that pass between FOMC meetings).
720
FOMC meetings do not generally include
a review of recent political polls.
Do members of the Board of Governors serve on the FOMC on a rotating basis?
No
FOMC stands for:
Federal Open Market Committee
When the Fed conducts open market operations to reduce reserves, the fed funds rate:
increases because there are less funds available for banks to lend and borrow.
This group has broad control over the growth of the nation's money supply:
Federal Open Market Committee
What happens to the profit (revenues in excess of costs) of the Federal Reserve Banks?
It is turned over to the Treasury.
To the nearest 10 percent, what percentage of U.S. commercial banks are members of the Federal Reserve System?
40 percent
Who selects the Federal Reserve Bank of Kansas City's president?
The Kansas City Fed's Board of Directors
Math problem: (The number of Federal Reserve Bank cities) times (the number of Federal Reserve Bank branch cities)
300
Rising expenditures (in dollars) must be accompanied by what?
more money or higher velocity
Who provides sufficient reserves for the economy?
the Federal Reserve
An increase in reserves will often cause short-term interest rates to
fall
A primary purpose of monetary policy today is to
stabilize the price level.
What largely determines the amount of money depository institutions can create?
the volume of reserves
The Federal Reserve's powers are defined in the U.S. Constitution.
False
Is the Fed System responsible to the executive branch?
No
Real economic stability requires all of the following except:
political leaders with degrees in economics
Monetary policy is flexible because:
The Federal Open Market Committee meets every six weeks and acts on decisions immediately
If your monthly mortgage is $987.85, are you likelier to make your payments by
ACH
If Robert writes a check to Acme Corp., what is the likely path his check will take?
Robert to Acme to Acme's bank to the Federal Reserve to Robert's bank
How does Fedwire transfer money?
by computer
If a company in California wishes to send money electronically to a company in Virginia, which combination of institutions are likely to be involved?
2 banks and 2 feds
Social Security benefits are transferred via
ACH
The Fed rarely changes Reserve Requirements in its conduct of monetary policy.
True
Which of the following is the most powerful instrument of monetary policy?
open market operations
In 2003 if a bank held $5.0 million in transaction deposits what percentage would the bank be required to keep on reserve?
0%
Which Federal Reserve Bank conducts the Fed System's foreign exchange actions?
New York
Is the Fed the nation's only bank regulator?
No
True or false: The Federal Reserve System plays no role in consumer protection.
False
Which of the following is not a goal of the Fed with respect to supervision and regulation?
ensuring that prices for loans never exceed an interest rate of 10%
Examiners are:
Federal Reserve employees who supervise and regulate financial institutions
Which of the following is not a primary economic goal supported by Federal Reserve policy?
rising wage rates
What is the most important function of the Federal Reserve System?
influencing the supply of money and credit
Who has a checking account with the Federal Reserve?
The U.S. Treasury
Why are the Federal Reserve Banks considered banker's banks?
The Fed provides services to commercial banks and other depository institutions.
Reserve Banks act as a bank for the U.S. government by performing all but one of the following operations
minting U.S. coins.
Which is not an entity of the Federal Reserve System?
Senate Finance Committee
How many members of the FOMC can vote at any one meeting?
12
How many districts make up the Federal Reserve System?
12
Which of these activities is not carried out by the Reserve Banks?
printing U.S. dollars
The members of the Board of Directors of each of the regional Banks
select the president of the banks on which they serve as directors.
Reserve Banks
carry out the Fed's policies at a regional level.
The head of the formal organization of the Federal Reserve System is the:
Board of Governors
The Federal Open Market Committee
meets in Washington D.C. to make monetary policy decisions.
The Federal Reserve System is concerned with which of the following policies?
monetary
To fight inflation, the Federal Reserve sometimes
slows the growth of money and credit in the economy.
Which is not a monetary policy tool of the Fed?
the prime rate
Open market operations are carried out
on a daily basis.
The discount rate is the rate that
Federal Reserve Banks charge banks for very short-term loans.
From May 1994 to February 1995, the Fed raised the discount rate four times. This indicates that the Fed was concerned primarily with
inflation.
As a result of the Fed's securities purchases
payment is made to the primary dealer responsible for the transaction.
Which of the following statements is true about the lag between a decision of the Federal Open Market Committee on monetary policy and its impact on the economy?
It may take over one year for the effect of the policy decision to impact on the economy.
The Fed's goals in making monetary policy include all of the following except:
an inflated currency
If the Federal Reserve is concerned that the economy may go into a recession they should
increase the growth of money and credit in the economy.
What is the term for the refusal of a bank to lend money to low-income communities while, at the same time, accepting deposits from those areas?
redlining
Which of the following would an examiner most likely use to evaluate a bank's compliance with the Community Reinvestment Act?
diversity of loan distribution in the bank's community
The Community Reinvestment Act requires that
banks help meet the credit needs of their community.
What are CAMELS ratings?
an acronym used by safety and soundness examiners, which stands for the six components of a bank's condition
Which of the following is one of the four primary goals of banking supervision and regulation?
Promote an efficient and competitive financial system.
Which of the following is not one of the "5-Cs" used to rate the quality of a loan?
Call report
A bank is examined in which of the following areas?
safety and soundness, community reinvestment,
consumer affairs,
Which of the following entities is not a bank regulator?
Bureau of the Public Debt
What is a bank's primary source of income?
interest on loans made to borrowers
Which of the following information should you find in a bank's brochure for a savings account?
average percentage yield,
any minimum balance required,
any monthly service fee,
The Federal Reserve offers financial services to banks and the U.S. government for all of the following reasons except to:
make a profit
Does the Fed process commercial checks?
Yes
The average life of a dollar note is how long?
18 months
On average, a Federal Reserve Bank's cash department verifies approximately how many notes annually?
800 million
A one-time written order that instructs a financial institution to transfer funds from your account to the account of an individual or business is called
a check
Just after you write a check at a store to make a purchase,
the store manager deposits the check in the store's account at a local financial institution.
The Federal Reserve System processes about ___ of all checks written in the country.
1/3
What is the electronic payment delivery system most often used to process low-dollar recurring retail payments?
automated clearinghouse (ACH)
Which of the following led the opposition to the Second Bank of the United States?
Andrew Jackson
The Federal Reserve-Treasury Accord
enhanced the independence of the Federal Reserve.
The Federal Reserve Act
was signed into law on December 23, 1913.
was brought about following the Panic of 1907.
provided a public-private model for central bank governance.
was maneuvered through Congress by President Woodrow Wilson.
The gold standard ended
in 1933 as a result of a decision by Franklin Roosevelt.
The Monetary Control Act of 1980
required the Fed to price its financial services competitively.
contributed to the proliferation of interstate banking.
established reserve requirements for all eligible financial institutions.
enabled banks to offer interest-paying accounts.
Which of the following acts separated commercial and investment banking and collateralized Federal Reserve notes?
The Banking Act of 1933
Before the founding of the Federal Reserve, banking panics were common because
our banking system experienced liquidity problems.
currency notes were often counterfeited.
our economy was expanding and our currency was inelastic.
there was no mechanism in place to regulate banking activities.
The National Banking Act of 1863
created a dual banking system and established a uniform currency.
The First Bank of the United States
was controlled by banking interests.
The Banking Act of 1935
established the FOMC as a separate legal entity.
set the membership of the Board of Governors at seven.
provided for all members of the Board of Governors to be appointed by the president and confirmed by the Senate.
set the term of office of a governor at 14 years.
U.S. Treasury securities
Interest-bearing obligations of the U.S. government issued by the U.S. Department of the Treasury as a means of borrowing money to meet government expenditures not covered by tax revenues. There are three types of marketable Treasury securities-bills, notes and bonds.
A significant decline in general economic activity extending over a period of time. Usually declared after two consecutive quarters of declining gross domestic products.
Recession
GDP (gross domestic product) adjusted for inflation. Real GDP provides the value of GDP in constant dollars, which is used as an indicator of the volume of the nation's output.
Real GDP