Chapter 24 Flashcards
Does the FRB control monetary or fiscal policy?
monetary
What elements are influenced when implementing fiscal policy?
taxes and expenditures
True or False: Government intervention is believed to assist in implementing monetary policy.
False. Fiscal (Keynesian) policy requires government intervention.
The FRB will ______ securities to increase the money supply and ease credit.
buy
The FRB will ______ securities to decrease the money supply and tighten credit.
sell
The FRB will ______ securities to decrease the money supply and tighten credit.
The FRB’s Federal Open Market Committee that will trade government securities with primary government dealers
What is the transaction called when the FRB buys government securities and agrees to sell them back quickly?
A repurchase agreement (repo)
What is the transaction called when the FRB sells government securities and agrees to buy them back quickly?
a reverse repo
The __________ rate is the only rate directly controlled by the FRB.
discount rate
If a member bank needs to borrow funds from the FRB, what rate will it be charged?
discount rate
There would be an easing of the money supply if the discount rate is __________.
lowered
There would be a tightening of the money supply if the discount rate is __________.
raised
__________ requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.
Reserve requirements
What is the effect of lowering the minimum reserve requirement?
It increases the money supply and eases credit.
What is the effect of raising the minimum reserve requirement?
It decreases the money supply and tightens credit.
What is the least effective tool available to the FRB?
Margin requirements (Reg T)
The __________________ is the rate of interest banks charge each other on overnight loans.
fed funds rate
The __________________ is the rate of interest banks charge each other on overnight loans.
most volatile
In proper order, list the four phases of the business cycle.
1) Expansion - 2) Peak - 3) Recession / Contraction - 4) Trough
__________________________ is the measure of goods and services produced by the U.S. worldwide.
GNP - Gross National Product
_____________________ measures the goods & services produced within the U.S., disregarding the producer’s origin.
GDP - Gross Domestic Product
A decline in GDP for two successive quarters is defined as a ____________.
recession
What economic theory emphasizes government intervention and the use of fiscal policy to manage the economy?
Keynesian Economic Theory
What economic theory emphasizes controlling the money supply to manage the economy?
Monetary Economic Theory
Stimulating the economy by reducing both taxes and the size of government is called _______________economic theory.
supply-side
________________ is a situation where clients withdraw funds from banks to seek higher yielding investments elsewhere.
Disntermediation
If interest rates are higher in the U.S. than overseas, what should happen to the value of the U.S. dollar?
It should strengthen as more foreign money is being invested in the U.S.
______________ is the rate that banks charge their most creditworthy corporate clients.
prime rate
What is LIBOR?
London Interbank Offered Rate (LIBOR)
____________ occurs when the supply of goods exceeds the demand for goods.
deflation
Deflationary periods are characterized by __________________ prices.
falling prices
___________ is what occurs when there is “too much money chasing too few goods.”
inflation
True or False: Inflation is a persistent rise in the general level of prices.
True
Would inflationary periods be characterized by rising or falling interest rates?
rising
The _______________________ is often considered the most important measure of inflation.
Consumer Price Index (CPI)
