Macro Chpt 15 – Flashcards
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When Congress established the Fed in 1913, its main responsibility was
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to make discount loans to banks suffering from large withdrawals by depositors
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Congress broadened the Fed's responsibility since
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the 1930s as a result of the Great Depression
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Which one of the following is NOT one of the monetary policy goals of the Fed?
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Reduce income inequality
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What is a banking panic?
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A situation in which many banks experience runs at the same time
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Which of the following best explains how the Fed acts to help prevent banking panics?
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The Fed acts as a lender of last resort, making loans to banks so that they can pay off depositors
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Monetary policy is defined as:
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The actions the Fed takes to manage the money supply and interest rates
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Which of the following is not one of the monetary policy goals of the Fed?
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a high foreign exchange rate of the U.S. dollar relive to other currencies
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Interest rate
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is a monetary policy target used by the Fed
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The Fed uses policy targets of interest rate and/or money supply because
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it can affect the interest rate and the money supply directly and these in turn can affect unemployment, GDP growth, and the price level
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What do economists mean by the demand for money?
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It is the amount of money-currency and checking account deposits- that individuals hold
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What is the disadvantage of holding money?
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Money, in the form of currency or checking account deposits, earns either no interest or a very low rate of interest
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The federal funds rate is
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-the interest rate that banks charge each other for overnight loans
-very important for the Fed's monetary policy because the Fed uses the federal funds rate as a monetary policy target since it can control the rate through open market operations
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What ar the Fed's main monetary policy targets?
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The money supply and interest rates
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Short-term nominal interest rate
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Is considered the most relevant rate when conducting monetary policy
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When the Fed conducts an open market purchase
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The Fed buys securities from banks and the money supply increases.
The interest rate should decrease
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When interest rates on Treasury bills and other financial assets are low, the opportunity cost of holding money is ______, so the quantity of money demanded will be ______.
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low; high
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If real GDP increases
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the money demand curve shifts to the right
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If the price level decreases
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the money demand curve shifts to the left
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If the Fed believes the economy is about to fall into recession, it should
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use an expansionary monetary policy to lower the interest rate and shift AD to the right
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If the Fed believes the inflation rate is about to increase, it should
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use a contractionary monetary policy to increase the interest rate and shift AD to the left
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A countercyclical policy is one that
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is used to attempt to stabilize the economy
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If the Fed is too slow to react to a recession and applies an expansionary monetary policy only after the economy begins to recover, then
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inflation will be higher than if the Fed had not acted
