Chapter 24

Question 1

Does the FRB control monetary or fiscal policy?

Answer 1

monetary

Question 2

What elements are influenced when implementing fiscal policy?

Answer 2

taxes and expenditures

Question 3

True or False: Government intervention is believed to assist in implementing monetary policy.

Answer 3

False. Fiscal (Keynesian) policy requires government intervention.

Question 4

The FRB will ______ securities to increase the money supply and ease credit.

Answer 4

buy

Question 5

The FRB will ______ securities to decrease the money supply and tighten credit.

Answer 5

sell

Question 6

The FRB will ______ securities to decrease the money supply and tighten credit.

Answer 6

The FRB’s Federal Open Market Committee that will trade government securities with primary government dealers

Question 7

What is the transaction called when the FRB buys government securities and agrees to sell them back quickly?

Answer 7

A repurchase agreement (repo)

Question 8

What is the transaction called when the FRB sells government securities and agrees to buy them back quickly?

Answer 8

a reverse repo

Question 9

The __________ rate is the only rate directly controlled by the FRB.

Answer 9

discount rate

Question 10

If a member bank needs to borrow funds from the FRB, what rate will it be charged?

Answer 10

discount rate

Question 11

There would be an easing of the money supply if the discount rate is __________.

Answer 11

lowered

Question 12

There would be a tightening of the money supply if the discount rate is __________.

Answer 12

raised

Question 13

__________ requirements set the amount of funds that banks must hold in reserve against specified deposit liabilities.

Answer 13

Reserve requirements

Question 14

What is the effect of lowering the minimum reserve requirement?

Answer 14

It increases the money supply and eases credit.

Question 15

What is the effect of raising the minimum reserve requirement?

Answer 15

It decreases the money supply and tightens credit.

Question 16

What is the least effective tool available to the FRB?

Answer 16

Margin requirements (Reg T)

Question 17

The __________________ is the rate of interest banks charge each other on overnight loans.

Answer 17

fed funds rate

Question 18

The __________________ is the rate of interest banks charge each other on overnight loans.

Answer 18

most volatile

Question 19

In proper order, list the four phases of the business cycle.

Answer 19

1) Expansion - 2) Peak - 3) Recession / Contraction - 4) Trough

Question 20

__________________________ is the measure of goods and services produced by the U.S. worldwide.

Answer 20

GNP - Gross National Product

Question 21

_____________________ measures the goods & services produced within the U.S., disregarding the producer’s origin.

Answer 21

GDP - Gross Domestic Product

Question 22

A decline in GDP for two successive quarters is defined as a ____________.

Answer 22

recession

Question 23

What economic theory emphasizes government intervention and the use of fiscal policy to manage the economy?

Answer 23

Keynesian Economic Theory

Question 24

What economic theory emphasizes controlling the money supply to manage the economy?

Answer 24

Monetary Economic Theory

Question 25

Stimulating the economy by reducing both taxes and the size of government is called _______________economic theory.

Answer 25

supply-side

Question 26

________________ is a situation where clients withdraw funds from banks to seek higher yielding investments elsewhere.

Answer 26

Disntermediation

Question 27

If interest rates are higher in the U.S. than overseas, what should happen to the value of the U.S. dollar?

Answer 27

It should strengthen as more foreign money is being invested in the U.S.

Question 28

______________ is the rate that banks charge their most creditworthy corporate clients.

Answer 28

prime rate

Question 29

What is LIBOR?

Answer 29

London Interbank Offered Rate (LIBOR)

Question 30

____________ occurs when the supply of goods exceeds the demand for goods.

Answer 30

deflation

Question 31

Deflationary periods are characterized by __________________ prices.

Answer 31

falling prices

Question 32

___________ is what occurs when there is “too much money chasing too few goods.”

Answer 32

inflation

Question 33

True or False: Inflation is a persistent rise in the general level of prices.

Answer 33

True

Question 34

Would inflationary periods be characterized by rising or falling interest rates?

Answer 34

rising

Question 35

The _______________________ is often considered the most important measure of inflation.

Answer 35

Consumer Price Index (CPI)