Chapter 16 money banking and monetary policy

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Intrest
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The price you pay for the use of money
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Transactions demand for money
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The demand for money as a medium of exchange
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Asset demand for money
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To the extent they want to hold money as an asset
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Total demand for money
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The sum of the transactions demand for money and the assets demand for money
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Open market operations
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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
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Interest on reserves
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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
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Discount rate
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The interest rate that the federal Reserve banks charge in the loans they make to commercial banks and thrift institutions
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Federal funds rate
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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.
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Expansion are monetary policy
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Federal Reserve system actions to increase the money supply, lower interest rates, and expand real Gdp and easy monetary policy.
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Restrictive monetary policy
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Federal reserve system actions to reduce the money supply, increase interest rates, and reduce inflation, a tight money policy.
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Prime interest rate
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The benchmark interest rate that banks use as a reference point for a wide range of loans to business and individuals.
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Taylor rule
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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.
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Zero interest rate policy
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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
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Zero lower bound problem
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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
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Quantities easing
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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
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Cynical asymmetry
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The idea that monetary policy maybe more successful in slowing expansions and controlling inflation than in extracting the economy from severe recession.
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Liquidity trap
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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
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Assets
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Securities Loans to commercial banks All other assets
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Liabilities and net worth
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Reserve of commercial banks Treasury deposits Federal Reserve notes (outstanding) All other liabilities
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Fed buys bonds from commercial banks causes
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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
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In the market for money the intersection of demand and supply determines what?
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The equilibrium price of money and interest rate
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In the market for money the intersection of demand and supply determines what?.
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The equilibrium price of money and interest rate
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Which of the following actions or events reduce the money supply?
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Eliminating check able deposits
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Lowering the reserve ratio enhances the ability of banks to do what?
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Create new money
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A high interest rate environment will have which of the following effects
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Discourage Investment Restrain demand pull inflation Lower aggregate demand
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Leading money by banks is made possible through
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Lowering the reserve ratio which transforms required reserves into excess reserves
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To counter political inflation during a strong expansion, the Fed____ reserves in the banking system to raise the interest rate
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Lowers
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As money borrowed by the federal government, securities are part of
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Public debt
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When banks reduce their reserves, it____ the money supply and_____ the interest rates s
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Decreases Increases
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When commercial banks lend new reserves, the money supply
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Increases
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Commercial banks are discouraged from obtaining additional reserves through borrowing from the federal Reserve banks when what occurs
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Discount rates are increased
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When the Fed sells government bonds which of the following elements make them attractive purchases for banks and the public
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Lower bond prices Higher interest yields
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When the federal Reserve purchase bonds in the open market from the public which of the following are elements of the transaction
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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
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To the lending bank the borrowing banks promissory note is what?
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An asset
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A____ interest rate environment will encourage investment rise aggregate demand and unleash demand pull inflation
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Low
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Which of the following are true of borrowing from the federal Reserve banks by commercial banks?
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Enhances the commercial banks ability to extent credit Increases reserves of the commercial banks
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When commercial banks lend new reserves the money supply______
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Increases
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A high interest rate environment will have which of the following effects
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Retain demand pull inflation Lower aggregate demand Discourage investments
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What happens to the money supply when commercial banks lend new reserves
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Increases

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