Chapter 15 Flashcards
What is a central bank responsible for?
1.conducting monetary policy
2. controls interest rate, regulates commercial banks
3. holds the accounts of the govt
4. ensures the nations financial system runs smoothly
What is the name of the Central Bank of Canada?
Bank of Canada
What was the royal assent and when did the bank of canada receive it.
The Bank of Canada received the royal assent of on July 3, 1934 which allowed them to become a privately owned institution
The Bank of Canada is a special type of _________ corporation, owned by the _________ government
Crown, Federal
Who is appointed by the banks Board of Directors
Governor and Senior Deputy Governor
who sits on the Board of Directors but has not vote?
the Deputy Minister of Finance
Who does the Bank submit their expenditures to? Who does the Federal Government submit their expenditures to?
The Bank submits theirs to the Board of Directors, The Federal Government submits theirs to the Treasury Board
What does the Bank of Canada do?
-promotes economic and financial welfare
-keeps inflation low and stable
-regulates supply of money circulating in the economy
-designs and distributes Canada’s bank notes (money)
-is the “fiscal agent” for the gov’t (manages debt programs, and foreign exchange reserves)
What is the Central Bank of the US called?
Federal Reserve
Who is the FED run by and how many of them run it? Who chooses and confirms these members?
Run by a Board of Governors consisting of 7 members chosen by the President and confirmed by the Senate
The FED also includes 12 regional Federal Reserve Banks, what are the districts and what are the responsible for?
San Francisco, New York, Boston, Philadelphia, Dallas, Kansas city, Minneapolis, St. Louis, Atlanta, Cleveland, Richmond and Chicago (responsible for supporting commercial banks and the economy within its district)
a semi decentralized institution, mixing govt appointees with representation from private sectors is the
Federal Reserve
The governor of the Bank of Canada is also known as the
Banks Chief Executive Officer
What is the Governor of the Bank’s responsibilities
-Chairs the Board of Directors
- Leads the Banks Governing Council
- Conducts monetary policy to achieve inflation target
-are approved for a seven year term
The best way to foster confidence in the value of money and to contribute to solid economic performance is by
keeping inflation low and stable
What is a bank run?
When depositors lose confidence in the bank and race to the bank to withdraw their money in fear that they will be lost. This results in many depositors losing their money
What is the CDIC
protects you against loss in your deposits in saving/chequing accounts
What is the Lender of last resort
an institution that provides short term emergency loans in conditions of financial crisis
What is has been critiqued about the lender of last resort?
That it induces a moral hazard
In expansionary monetary policy the central bank causes….
the supply of money and loan able funds to increase = lowers interest rate (stimulates borrowing for investment and consumption) =shifts aggregate demand right= higher price level and GDP
In contractionary monetary policy the central bank causes..
supply of money and credit to decrease= raises interest rates (discourages borrowing for investment and consumption)= shifts aggregate demand left= lower price level and GDP
An expansionary policy will shift the supply of loanable funds to the
right, reducing interest rates
A contractionary policy will shift the supply of loanable funds to the
left, raising interest rates
Central bank focusing on low stable inflation is known as
Inflation Targeting
The Quantity Equation of Money is
MV=PY
What is the calculation of velocity using M1?
Velocity= Nominal GDP / Money Supply
Monetary Supply is
all the money in the economy
Monetary Policy is
Controlling the supply of money
Monetary Policy Tools are..
- open market operations
- monetary policy interest rates
- quantitative easing
a monetary policy that increases supply of money and the quantity of loans is an
Expansionary/Loose Monetary Policy
a monetary policy that reduces supply of money and loans is
Contractionary/ Tight Monetary Policy
Monetary Policy should be _________, it should counterbalance the business cycles of economic upswings and dowturns
countercyclical
The BOC should _______ monetary policy in a recession and _________ it when inflation threatens.
loosen, tighten
T or F: Too loose monetary policy can cause inflation and too tight monetary policy can cause recession
True
In a neoclassical view, monetary policy only affects _______
price level
the purchasing of long term government and private mortgage-backed securities by central banks to make credit available in hopes of stimulating aggregate demand is referred to as
Quantitative Easing (QE)
How does quantitative easing differ from traditional monetary policy?
- the central bank purchases long term govt bonds rather than short term
- central bank purchases not only govt bonds but private financial assets
The banking system keeps things stable through..
-lender of last resort
-market infrastructures
-conducting and publishing analysis and research
-helping to develop and implement policy
-banking services to commercial banks
if an economy is initially in recession, a contractionary monetary policy will do what?
increase unemployment but have little effect on inflation.
According to the quantity equation of money, if real GDP is 14.5, the money supply is 499.5, the velocity of money is 9.7, then how much is the price level?
334.15
Which of the following is NOT a tool used by the Fed during recessions?
higher interest rates
Regardless of the outcome in the long run, what always stimulates the economy in the short run?
expansionary monetary policy
Which term describes the proportion of deposits that banks are legally required to deposit with the central bank?
reserve requirements
Which institution determines the quantity of money in the economy as its most important task
Central Bank
According to the quantity equation of money, what happens when constant growth in the money supply is combined with fluctuating velocity?
unpredictable rises and falls in nominal GDP
What happens when the central bank decides to increase the discount rate?
interest rates increase
if an economy is initially in recession an expansionary monetary policy will do what?
reduce unemployment but have little effect on inflation.
T or F: Bank regulation is intended to maintain banks’ solvency by avoiding excessive risk. Regulation falls into a number of categories, including reserve requirements, capital requirements, and restrictions on the types of investments banks may make.
True
What determines the interest rates in the lending and borrowing markets in the U.S.?
supply and demand
Central Bank policy requires Northern Bank to hold 10% of its deposits as reserves. Northern Bank policy prevents it from holding excess reserves. If the central bank purchases $30 million in bonds from Northern Bank what will be the result?
Northern’s loan assets increase by $30 million
What actions offset business-related economic contractions and expansions?
countercyclical policies
What policy will be helpful when the economy is in recession with high unemployment?
a loose monetary policy
The quantitative easing policies adopted by the Federal Reserve are usually thought of as what?
temporary emergency measures
a discount rate is
the interest rate at which banks can borrow from the federal reserve
How can minimum reserve requirements influence price stability?
by raising the requirement, the federal reserve takes money out the economy to help fight inflation
