Flashcards and Answers – Economics Chapter 16
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How well did the Federal Reserve Banks perform during the great depression
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Individual governors of the Federal Reserve Banks disagreed over policy and were unable to stop the depression
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Board of governors
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The Federal Reserve system is overseen by these people they are headquartered in Washington it's seven members who are appointed for staggered 14 your terms by the president of the US
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Monetary policy
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Refers to the actions the fed takes to influence the level of real GDP and the rate of inflation in the economy
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Federal reserve districts
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Seattle Portland San Francisco Salt Lake City Los Angeles Alaska Hawaii Chicago Detroit Philadelphia
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Federal advisory Council (FAC)
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Collects information about each district and reports to the board of governors about economic conditions within their districts it consists of one member from each Federal Reserve District 12 members and all their main function is to provide feedback and advice to the board of governors concerning the overall financial health of each district they meet with the board of governor four times a year
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Federal open market committee (FOMC)
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Makes key decisions about interest rates in the growth of the nation's money supply this committee meets about eight times a year and private to discuss the cost and availability of credit for business and consumers across the country. Announcements of their decisions can affect the financial markets in the rates of home mortages , and many other economic institutions around the world
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What is the make up of the Federal Reserve's district
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Each district is made up of more than one state federal reserve districts include a mixture of agriculture manufacturing and service industries as well as rural & urban areas
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What is the role of the federal open market committee?
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It makes key decisions about interest rates and the growth of the United States money supply
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Who appoints the members of the board of governors of the federal reserve
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The US president
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What was one reason the US government started a federal reserve system
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To provide consumers with access to funds for business expansion
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Why are the board of governors of the Federal Reserve appointed for staggered 14 year terms
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To protect board members from political pressures
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Why does the Federal Reserve system have a high degree of political independence
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The system is owned by the banks
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Monetary policy is the...
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Action the Federal Reserve text influence the level of real GDP in the right inflation in the economy
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In 1935, what changes were made to the Federal Reserve system
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The Federal Reserve system is getting more centralized power
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Why were many US citizens against the second bank of United States, which was an attempt by Congress to restore order in the monetary system in 1816
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Citizens feared that is central bank placed too much power in the hands of the federal government
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The research arm of the Federal Reserve is the
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Federal Advisory Council
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Check clearing
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Is the process by which banks record whose account gives of money in his account receives money when a customer write the check. The feds can clear millions of checks at one time using the high-speed equipment. Most checks clear within two days a remarkable treatment when you consider that the Fed deals with about 20 billion checks per year
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Bank holding company
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A company that owns more than one bank
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Federal funds rate
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The interest rate the banks charge each other for these loans
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Discount rate
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The rate the Federal Reserve charges for loans
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What does lender of last resort mean with respect to the federal reserve
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It will lend money to a bank in a financial emergency
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Who issues US paper currency
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The district Federal Reserve Banks
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Net worth
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Equals total assets minus total liabilities
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What does fractional reserve banking system mean
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One that keeps only a small part of customers deposits on hand
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What is this Federal Reserve best known for
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For regulating the nation's money supply
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Why does a high interest-rate discourage people from holding the money in cash
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They can earn interest on the cash if it is invested
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Which of the following is one way the Federal Reserve Bank serves the government
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Selling government securities
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Bank examiners are
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Authorized for spanks to sell off investments that they consider excessively risky
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What is the relationship between interest rates and the man for money
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As interest rates decrease the man for money increases
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In the United States what does the general Level of a family's income have to do with the amount of cash that family is likely to hold
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The higher the real income, the more cash the family will hold
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As interest rates rise
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It becomes more expensive the hold money as cash
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What is the federal funds rate
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interest-rate banks charge each other for long
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What is it called when banks record which account gets that money in which account receive the money when a customer write a check
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Check Clearing
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Truth-in-lending law requires that
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Sellers provide full and accurate information about loan terms
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The rate the federal reserve charges for loans to commercial banks is called ___.
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The discount rate
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Required reserve ratio
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The fraction of the deposit that must be kept on reserve
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Money multiplier formula
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The amount of new money that will be created with each demand deposit. It's calculated 1 RRR. Increase in money supply = initial cash deposit x 1 (over) RRR.
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Excess Reserves
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Reserves greater that the required amounts
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If the money multiplier is 4, what is the required reserve ratio?
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25%
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As commercial banks keep more excess reserves, what happens to money creation?
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It decreases
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Prime Rate
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The rate of interest that banks charge on short term loans to their best customers- usually large companies with good credit rating.
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Open market operations
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Most important monetary policy tool. Try a re the buying & selling of government securities to alter supply of money.
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Open market operations are
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The buying and selling of government securities to alter the supply of money
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What is the most used instrument for controlling week-to-week changes in the money supply
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Open market operations
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Why does the Fed rarely increase reserve requirements?
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It can be disruptive to the whole banking system
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What is the required reserve ratio
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The portion of a deposit that a bank must keep on hand
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What is the policy used most by the fed to change the money supply
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Open market operations
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If the feds were imposed a slight increase in the required reserve ratios, there would be____.
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A decrease in the money supply
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How could the Federal Reserve encourage banks to lend out more of the reserves
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By reducing the discount rate
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If the required reserve ratio is 20% and the customer deposited $5000 in the bank I much is available to the bank for lending
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4000
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Why does the bank sometimes hold excess reserves
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To be sure it can meet its customers demands
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Money multiplier formula
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Determines the amount of money that will be created with each demand deposit
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Which of the following would create the most money
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Positive 6500 and the required reserve ratio is 20%
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The following tools is an example of monetary policy
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Changing reserve requirements
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Easy money policy
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Increase the money supply
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Tight money polucy
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It will reduce the money supply
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Why does the Federal Reserve alter monetary policy
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To lessen the fact of metro business cycles
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What does the monetary policy do
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It alters the supply of money
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Indie lag
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Delays in implementing policy
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Outside lag
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Difference for monetary and fiscal policy
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How quickly can and increasing government spending increased the gross domestic product
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6 momths
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What does fiscal policy include
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Changes in government spending and taxation
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What is likely to be the best approach to recession that is expected to turn into an expansion in a short time
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Do nothing and let the economy fix itself
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Which of these situations is most likely to cause the Fed to introduce a tight money supply
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Economy is expanding quickly in inflation is a concern
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Which of the following is an example of inside like in monetary policy
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Members of the board of governors refuse to lower the discount rate until several months after your session has begun
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What monetary policy should be implemented to correct inflationary economy
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Tight monetary policy
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What change and monetary policy could eventually cause over borrowing and overinvestment
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An increase in the money supply
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tight money policy is...
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Monetary policy that reduces the money supply
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What is the main idea of monetarism
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The money supply is the most important factor in economic performance
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What is a delay and implementing monetary policy called
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Inside lag
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Monetary policy ministered by the Fed is the principal method of softening the fax of the business cycle because
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There are more political complications with determining and implementing Fiscal policy
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Monetary policy makers can help smooth out the fluctuations of business cycle by
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Reacting to current trends
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What is one possible short-term effect of an easy money policy
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Increased investment spending
