ch 12 monetary policy

Question 1

established with the federal reserve act of 1913, designed to be politically independent, the central bank

Answer 1

The Federal Reserve System

Question 2

Main job of the Fed

Answer 2

to buy and sell already existing bonds to help monetary policy

Question 3

Structure of The Fed

Answer 3

board of Governors
Regional Banks
Federal Open Market Committee

Question 4

How big is the board of governors

Answer 4

7 people

Question 5

job of the board of governors

Answer 5

to oversee the regional banks, decide what happens to interest rates

Question 6

How is the board of governors determined?

Answer 6

President appoints and senate confirms

Question 7

How long is the board of governors terms?

Answer 7

14 years

Question 8

Who is the current chair of board?

Answer 8

Jerome Powell

Question 9

How long is the chair of board term

Answer 9

4 years

Question 10

banks for the banks, implements regulations and policy and conducts research

Answer 10

regional federal banks

Question 11

How many regions have a federal regional bank

Answer 11

12

Question 12

sets monetary policy and decides interest rates; meets every 6 weeks

Answer 12

Federal Open Market committee

Question 13

How many members in FOMC

Answer 13

12 - (7 are from board of governors)

Question 14

What states fed bank president is always on FOMC

Answer 14

NY President of Fed Bank

Question 15

What regional bank does open market operations

Answer 15

NY

Question 16

tools of monetary policy

Answer 16

1. ) Federal funds rate and open market operations
2. ) Interest Rate on Excess Reserves
3. ) Discount Rate
4. ) Required Reserve Ratio

Question 17

NY Fed regional bank buys and sells US bonds

Answer 17

open market operations

Question 18

expansionary open market operations

Answer 18

Buying of bonds from the people in order to increase bank reserves and money supply; fed sees economy going to a recession and it does that^

Question 19

Fed pays interest on excess reserves that shrinks monetary supply

Answer 19

interest on excess reserves

Question 20

shrinking the money supply can be done

Answer 20

by selling bonds

Question 21

what do high interest rates do to money reserves

Answer 21

haults the money reserve causing loans to fall

Question 22

known as the lender of last resort; the interest rate that the fed charges other banks for borrowing reserves

Answer 22

discount rate

Question 23

how is the discount rate used by banks?

Answer 23

If required reserves fall below 10%, banks will sell bonds, sell loans, recall loans, or can borrow from the bank overnight (rare)

Question 24

What is the process for the discount rate to be used as a last resort?

Answer 24

can ask the federal gov for help to borrow but the interest paid on the loan is known as the discount rate

Question 25

What does it mean when the discount rate percentage tell banks?

Answer 25

Tells them if they are safe to borrow or not
if high, banks will be nervous to borrow and avoid going below the required reserve
if low, the banks won’t be worried about running out of money

Question 26

what happens to the money supply when the discount rate increases?

Answer 26

Falls (decreases)

Question 27

When the money multiplier is low

Answer 27

money has slow growth

Question 28

when money mulitplier is high

Answer 28

money gets created

Question 29

What does change in reserve ratio mean?

Answer 29

interest rates will change drastically;

Question 30

What happens to the money multiplier when the reserve ratio increases?

Answer 30

decreases

Question 31

What happens to the money supply with reserve ratio?

Answer 31

inverse relationship

Question 32

if the FOMC wants to expand the money supply, it will

Answer 32

buy US treasury bonds

Question 33

if the FOMC wants to contract the money supply

Answer 33

it will sell bonds

Question 34

the interest rate banks charge when they lend reserves to other banks

Answer 34

Federal funds rate

Question 35

if the Fed wants to reduce the federal funds rate it will

Answer 35

buy bonds (reduces interest rates on loans)

Question 36

what raises the federal funds rate?

Answer 36

Selling bonds (increases interest rates)

Question 37

decision to sell bonds affects interest rates how

Answer 37

1. ) reduces the money supply
2. ) restricting excess reserves therefore increasing interest rates among banks
3. ) lowering the price of bonds creating a higher interest rates that bonds pay

Question 38

opportunity cost of having required reserve

Answer 38

the potential money made off of lending the money out versus keeping it

Question 39

the required amount of money a bank must keep available through deposits or money in a vault

Answer 39

required reserve ratio

Question 40

results of expansionary monetary policy

Answer 40

increase in spending
bank reserves and money supply increase
loans are easier to get
amount of loans increases
interest rates fall

Question 41

What are the conditions of contraction monetary policy?

Answer 41

High inflation rates and high unemployment

Question 42

results of contraction monetary policy

Answer 42

selling bonds 
reserves fall
fewer loans
interest rates rise
investment falls
spending decreases

Question 43

use of contraction monetary policy

Answer 43

fight inflation

Question 44

use of expansionary monetary policy

Answer 44

reduce unemployment