question

Intrest

answer

The price you pay for the use of money

question

Transactions demand for money

answer

The demand for money as a medium of exchange

question

Asset demand for money

answer

To the extent they want to hold money as an asset

question

Total demand for money

answer

The sum of the transactions demand for money and the assets demand for money

question

Open market operations

answer

The purchases and sales of the U.S. government securities that the federal reserve system undertakes in order to influence interest rates and the money supply one method in which the federal reserve implements monetary policy

question

Interest on reserves

answer

The payment by a central bank of interest on the deposits (required reserves plus excess reserves if any) held by commercial banks and the central bank

question

Discount rate

answer

The interest rate that the federal Reserve banks charge in the loans they make to commercial banks and thrift institutions

question

Federal funds rate

answer

The interest rate that U.S. Banks and other banks depository institutions charge on another on over night loans made out of their excess reserves.

question

Expansion are monetary policy

answer

Federal Reserve system actions to increase the money supply, lower interest rates, and expand real Gdp and easy monetary policy.

question

Restrictive monetary policy

answer

Federal reserve system actions to reduce the money supply, increase interest rates, and reduce inflation, a tight money policy.

question

Prime interest rate

answer

The benchmark interest rate that banks use as a reference point for a wide range of loans to business and individuals.

question

Taylor rule

answer

The monetary rule proposed by economist john Taylor that would stipulate exactly how much the Federal Reserve system should change real interest rate in response to divergences of real GDP from potential GDP and divergences of inflation from a target rate of inflation.

question

Zero interest rate policy

answer

A monetary policy in which a central bank sets nominal interest rates at or near zero percent per year in order to stimulate the economy

question

Zero lower bound problem

answer

The constraint placed on the ability of a central bank to stimulate the economy through lower interest rates by the fact that nominal interest rates cannot be driven lower than zero

question

Quantities easing

answer

An open market operation in which bonds are purchased by a central bank in order to increase the quantity of excess reserves held by commercial banks and thereby stimulate the economy by increasing the amount of lending undertaken by commercial banks undertaken when u treat rates are bear zero and consequently, it is not possible for the central bank to further stimulate the economy with lower interest rates due to the zero lower bound problem

question

Cynical asymmetry

answer

The idea that monetary policy maybe more successful in slowing expansions and controlling inflation than in extracting the economy from severe recession.

question

Liquidity trap

answer

A situation in a severe recession in which the central banks injection of additional reserves into the banking system has little or no additional positive impact on lending borrowing, investment, or aggregate demand

question

Assets

answer

Securities Loans to commercial banks All other assets

question

Liabilities and net worth

answer

Reserve of commercial banks Treasury deposits Federal Reserve notes (outstanding) All other liabilities

question

Fed buys bonds from commercial banks causes

answer

Expansionary policy Lowers reserve ratio Lowers the discount rate Or reduces the interest rate on reserves ? Then, excess reserves increases federal ? funds rate falls ? Money supply rises ? Intent rate falls ? Investment spending increases ? Aggregates demand increases ? Real GDP rises

question

In the market for money the intersection of demand and supply determines what?

answer

The equilibrium price of money and interest rate

question

In the market for money the intersection of demand and supply determines what?.

answer

The equilibrium price of money and interest rate

question

Which of the following actions or events reduce the money supply?

answer

Eliminating check able deposits

question

Lowering the reserve ratio enhances the ability of banks to do what?

answer

Create new money

question

A high interest rate environment will have which of the following effects

answer

Discourage Investment Restrain demand pull inflation Lower aggregate demand

question

Leading money by banks is made possible through

answer

Lowering the reserve ratio which transforms required reserves into excess reserves

question

To counter political inflation during a strong expansion, the Fed____ reserves in the banking system to raise the interest rate

answer

Lowers

question

As money borrowed by the federal government, securities are part of

answer

Public debt

question

When banks reduce their reserves, it____ the money supply and_____ the interest rates s

answer

Decreases Increases

question

When commercial banks lend new reserves, the money supply

answer

Increases

question

Commercial banks are discouraged from obtaining additional reserves through borrowing from the federal Reserve banks when what occurs

answer

Discount rates are increased

question

When the Fed sells government bonds which of the following elements make them attractive purchases for banks and the public

answer

Lower bond prices Higher interest yields

question

When the federal Reserve purchase bonds in the open market from the public which of the following are elements of the transaction

answer

The seller gets a payment check to deposit in its bank account, the seller gives up securities to the federal Reserve banks, the bank sends the check for collection

question

To the lending bank the borrowing banks promissory note is what?

answer

An asset

question

A____ interest rate environment will encourage investment rise aggregate demand and unleash demand pull inflation

answer

Low

question

Which of the following are true of borrowing from the federal Reserve banks by commercial banks?

answer

Enhances the commercial banks ability to extent credit Increases reserves of the commercial banks

question

When commercial banks lend new reserves the money supply______

answer

Increases

question

A high interest rate environment will have which of the following effects

answer

Retain demand pull inflation Lower aggregate demand Discourage investments

question

What happens to the money supply when commercial banks lend new reserves

answer

Increases

Chapter 16 money banking and monetary policy – Flashcards

Unlock all answers in this set

Haven't found what you were looking for?

Search for samples, answers to your questions and flashcards