Chapter 6 questions Flashcards
what is the wellspring of US dollars?
Federal Reserve
Why was the Fed created?
to be a lender of last resort to prevent banking crises
true, false. the fed’s early record was not good
true, they caused huge deflation which was said to cause the great depression
True False. If congress wanted to end the fed they could stop funding it
False the Fed funds itself
Who runs the fed?
The 7 board governors appointed by the president to 14 year terms
Chair is appointed to 4 year term
how could an open market transaction lower the money supply?
if the FOMC sells bonds, bonds flow into the economy and money flows into the fed
if the fed lowers the required reserve ratio, what will happen to the money supply?
The money supply will increase because the bank can lend more, which moves money from their reserves, which are not part of the money supply, into currency and individual accounts, which are part of the money supply.
The news media says,” the Fed lowered interest rates by 1% today” what does that really mean?
the FOMC plans to increase the money supply until the Federal Funds Rate falls 1%
Which of its three tools of monetary policy does the bank prefer?
Open Market Operations
The Required Reserve ratio is dangerous
the discount rate is weak
what is the definition of the money multiplier?
1/ (required reserve ratio)
the price index for a particular year is $200. What is the most straightforward interpretation of that number?
if $100 bought $100 worth of stuff in the base year, it takes $200 to buy the same stuff.
what is the definition of the inflation rate?
the percent change in the price index, usually over one year.
