Econ 201 Monetary System, Growth & Inflation

Question 0

What does the Fed do to increase the money supply? (OMO)

Answer 0

Buy bonds from the public (new york stock exchange)

Question 1

Open Market Operations

Answer 1

The purchase and sale of U.S. government bonds by the Fed

Question 2

What does the Fed do to decreas the money supply? (OMO)

Answer 2

Sells bonds to the public (new york stock exchange)

Question 3

What increases the money supply? (Fed lending to banks)

Answer 3

A lower discount rate, which increases the quantity of reserves therefore increasing the money supply.

Question 4

What decreases the money supply? (Fed lending to banks)

Answer 4

A higher discount rate, which decreases the quantity of reserves therefore decreasing the money supply.

Question 5

In addition to influencing the quantity of reserves, the Fed changes the money supply by influencing the reserve ratio and thereby the money multiplier

Answer 5

The Fed can influence the reserve ratio either through regulating the quantity of reserves banks must hold or through the interest rate that the Fed pays banks on their reserves.

Question 6

Reserve requirements influence what?

Answer 6

How much money the banking system can create with each dollar of reserves.

Question 7

Money Multiplier

Answer 7

Reciprocal of reserve ratio (1/R)