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Money, Credit, & Banking > Exam3 17-18, 20-21 > Flashcards

Exam3 17-18, 20-21 Flashcards

1
Q

Central bank liabilities? (3)

A

Currency, government accounts, reserves

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2
Q

How does the fed control the quantity of securities they hold?

A

Through open market operations

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3
Q

Reserves are what for commercial banks and what for central banks?

A

Assets; liabilities

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4
Q

What do commercial banks reserves consist of?

A

Cash in the banks own vault and deposits at the fed

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5
Q

What is the monetary base also known as?

A

High powered money

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6
Q

A withdraw by a person does what to the Feds balance sheet?

A

No change in total assets or total liabilities,

An increase in the liability of currency and decrease in the liability of reserves by the amount of the withdraw

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7
Q

During early years of the Great Depression a study of the money aggregates reveals that the money multiplier did what?

A

Decreased

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8
Q

What is the focus of central banks today?

A

Interest rates

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9
Q

The fed offers discount lending as what?

A

Lender of last resort

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10
Q

Most central banks provide discount loans at what type of rate?

A

One above the target interest rate

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11
Q

What is the primary policy instrument of the FOMC?

A

The target federal funds rate

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12
Q

What would the fed do if the market fed funds rate went above the target?

A

Purchase US treasury securities

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13
Q

If current market fed funds rate = target rate and the demand for reserves decreases, what is the likely response in the fed funds market?

A

Market fed funds rate will decrease

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14
Q

Three types of loans the fed makes?

A

Primary, secondary, seasonal

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15
Q

Primary credit extended by the fed is what? (2)

A

Short-term & overnight

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16
Q

Are reserve requirements a direct tool of monetary policy today?

A

No

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17
Q

Can central banks set a quantity and price tool simultaneously?

A

No

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18
Q

When the fed targeted bank reserves as monetary policy tool from 1979-1982 what happened?

A

Interest rates rose very high

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19
Q

An increase in reserve demand would do what to the fed funds rate?

A

Increase it.

Decrease in reserve demand would decrease it

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20
Q

If reserve demand is volatile, in order for the central bank to keep interest rates from being volatile it must do what?

A

Let quantity of reserves fluctuate

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21
Q

Taylor rule equation?

A

Target fed funds rate = 2+current inflation + 1/2(inflation gap) + 1/2(output gap)

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22
Q

What does the quantity theory of money state?

A

Changes in the aggregate price level are caused solely by changes in the quantity of money

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23
Q

In long run, if ignore changes in velocity what will inflation do?

A

Equal money growth - growth in potential output

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24
Q

What happens during a recessionary gap?

A

Current output is below potential output

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25
Q

What happens during an expansionary gap?

A

Current output is above potential output

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26
Q

What would the monetary policy reaction curve do as result of policy makers increasing the inflation target?

A

MPRC would shift to the right

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27
Q

The relationship between inflation and real output is what?

A

Inverse

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28
Q

How do central bankers respond to higher rates of inflation?

A

By increasing the real interest rate

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29
Q

Decrease in the inflation target would do what to the dynamic aggregate demand curve?

A

Shift left

30
Q

If policy makers fear an imminent recession because of pessimism of business people what would they do to avoid?

A

Shift MPRC right

31
Q

The short run aggregate supply curve is what?

A

Upward sloping

32
Q

If current output level rises above potential output level, what would the short-run aggregate supply curve do over time?

A

Shift left

33
Q

What makes output gaps occur(besides CO not equaling PO🙄)?

A

aggregate demand equals short run aggregate supply but not long run aggregate supply

34
Q

What affect does an expected higher price level (inflation) have on short run aggregate supply?

A

Shifts left

35
Q

Increase in aggregate demand would have what short run effect?

A

Increase in current inflation rate

36
Q

Open market purchase of bonds by the fed will cause what in the long run for real GDP and aggregate price level?

A

No change in GDP and increase in aggregate price level

37
Q

If a recession were the result of monetary policy, we should observe what happen?

A

Interest rates rising as output falls

38
Q

Since every recession was preceded by rising interest rates, what does this suggest about them?

A

They were caused by the actions of the fed

39
Q

Central bank assets? (3)

A

Securities, foreign exchange reserves, loans

40
Q

if current output level drops below potential level of output, the SRAS curve will do what over time?

A

shift right

41
Q

what does a negative supply shock cause SRAS to do?

A

decrease

42
Q

what will an appreciation of the US dollar cause real GDP to do in the short run? what about inflation?

A

GDP & inflation decreases

43
Q

where can the point be found where target inflation is consistent with the long-run real interest rate?

A

MPRC!

on the MPRC, rate is x-axis, inflation is y-axis

44
Q

a negative supply shock accommodated by an open market purchase by the fed will cause what to happen to GDP and inflation in the long run?

A

no change in GDP, increase in inflation

45
Q

at any point along the long run aggregate supply curve, current output equals ___ and expected inflation equals ___

A

potential output; current inflation

46
Q

open market sale of bonds by the fed would cause what to happen to GDP and inflation in the short run?

A

decrease GDP and inflation

47
Q

what happens to the MPRC if the fed increases or decreases the target inflation rate?

A

increase target inflation (decreases target int rate), MPRC shifts right. decrease target inflation (increases target int rate), MPRC shifts left

48
Q

if recession feared due to increased pessimism of business people, how would policymakers avoid recession?

A

shift MPRC to the right!

49
Q

if a recession were the result of monetary policy we should observe what happen?

A

interest rates rising, output falling

50
Q

when output is below the natural rate level, what happens to wages and inflation and the SRAS curve?

A

wages fall, inflation decreases, SRAS curve shifts left (decreases)

51
Q

what would a decrease in taxes cause? what about an increase?

A

cut taxes – ^C – ^AE – ^AD (shifts right)

^taxes – decrease C – decrease AE – decrease AD (shifts left)

52
Q

what does the quantity theory of money explain?

A

the higher the level of real money growth,the lower the level of inflation will be

53
Q

economy is in both a short and long run equilibrium if current inflation equals what and current output equals what?

A

current inflation = expected inflation & current output = potential output

54
Q

an increase in aggregate demand (from an open market purchase of the fed) has what short run effects?

A

increase in current inflation rate

55
Q

what shift on what curve causes stagflation?

A

leftward shift on SRAS

56
Q

based on the equation of exchange, what does the quantity theory of money state?

A

changes in aggregate price level caused solely by changes in quantity of money

57
Q

what are effects on cost of production and SRAS curve when workers receive higher wages?

A

cost of production ^^ and SRAS shifts left

58
Q

what are the wealth effect, interest rate affect, and exchange rate effect explanations for?

A

the slope of the aggregate demand curve (why it slopes downward)

59
Q

the wealth effect?

A

inflation rises, real wealth goes down, so C goes down, so AD decreases

60
Q

interest rate effect?

A

inflation rises, demand for money rises, so selling bonds rises, supply of bonds rises, price of bonds falls, so real rate rises, investing falls, AD falls

61
Q

exchange rate effect?

A

inflation rises, real rate rises, foreigners demand more US bonds, demand for US dollar rises, exchange rate rises, US goods become expensive, exports go down, imports rise, NX down, so AD down

62
Q

the two shifters of aggregate demand curve?

A

any event that changes MPRC or aggregate expenditures would cause AD curve to shift

63
Q

what causes changes in aggregate expenditures? (4)

A

consumption, investment, government spending, NX

64
Q

3 things that cause changes in consumption?

A

change in stock market (crash or boom), change in taxes (cut or rise), change in consumer confidence (optimistic or pessimistic)

65
Q

2 things that cause changes in investment?

A

business confidence, investment tax credit

66
Q

2 things that cause changes in net exports?

A

exchange rates, economic fluctuations abroad (recession abroad lowers NX, expansion abroad rises NX)

67
Q

2 things that cause changes in MPRC?

A

change in target inflation(rise then AD rises) or target real interest rate (rise than AD falls)

68
Q

what are shifters of the SRAS curve? (any event that causes changes in what?)

A

any event that causes changes in cost of production

69
Q

2 things that cause changes in cost of production?

A

change in oil prices, change in expected inflation(prices) – inflation rises, wages rise, costs rise, SRAS decreases

70
Q

what monetary and fiscal policy actions take place during recessions?

A

must ^AD so ^money supply buy buying bonds(monetary); ^G and lower T(fiscal)

71
Q

what makes recessionary gaps happen?

A

AD or SRAS shift left

72
Q

velocity of money is what in the short run and what in the long run?

A

volatile in short run, constant in long run

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