FC CH 5 Flashcards
Changing the ______ requirement would have the least impact on money supply
Changing the margin requirement (Regulation T) would have the least impact on money supply.
True or False: The FRB only sets short-term rates (discount rate) and has no direct control over long-term yields.
True
Changing the _______ requirement would have the most immediate impact on money supply.
Changing reserve requirements would have the most immediate impact on money supply.
What indicator measures all of the goods and services that are produced with the United States?
Gross Domestic Product (GDP)
The difference between the yields for high rated corporates and Treasuries is referred to as the ______ over Treasuries.
The difference between the yields for high rated corporates and Treasuries is referred to as the spread over Treasuries.
To slow inflation, the FRB may _______ the money supply and ____ Treasuries to banks.
To slow inflation, the FRB may tighten the money supply and sell Treasuries to banks.
If interest rates trend upward as the term of the debt lengthens, this is referred to as a _______________ yield curve.
If interest rates trend upward as the term of the debt lengthens, this is referred to as a positive/normal yield curve.
On what two items does monetary policy focus?
Money supply and the extension of credit (interest rates)
Using government spending and taxation to influence the economy is considered ______ policy.
Using government spending and taxation to influence the economy is considered fiscal policy.
What role does the Federal Open Market Committee play in the economy?
The FOMC oversees the trading of government securities in the secondary market.
What index is designed to mirror the cost of a basket of goods purchased by a typical individual?
The Consumer Price Index (CPI)
True or False: Long-term debt is considered more liquid than short-term debt.
False
Define the monetary base.
The sum of currency in circulation as well as deposits held by banks and other depositories in their accounts at the FRB
High demand for short-term debt would lead to an ________ yield curve.
High demand for short-term debt would lead to an inverted yield curve.
True or False: Investments in money market mutual funds are typically included in M1.
False. Money market fund deposits are included in M2, not M1.
What is included in M2?
All items included in M1 as well as savings deposits, small denomination time deposits, and money market mutual funds
What is the Producer Price Index (PPI) an indicator for?
The first indicator of the level of inflation each month
What is included in M1?
Currency that is held by the public, demand deposits, and checkable deposits
What yield curve has short-term rates that are higher than long-term rates?
An inverted, abnormal, or negative yield curve
What is the only interest rate that is directly controlled by the FRB?
The discount rate
List the three business cycle indicators.
Leading, coincident and lagging
__________ deficit occurs when the economy is operating at full employment.
Structural deficit occurs when the economy is operating at full employment.
List the three main objectives of monetary policy.
Stable prices, long-term economic growth, and maximum employment
As it relates to bonds, explain compression.
The fact that prices on certain debt will not rise as much as other debt when interest rates fall
Prices on bonds of equal rating, but with different coupons, would likely be influenced by ___________.
Prices on bonds of equal rating, but with different coupons, would likely be influenced by compression.
List four items that influence a bond’s liquidity.
Its coupon, quality, maturity, and callability
Define flight to quality.
Investors choosing high quality debt over low quality debt
True or False: Fiscal policy is implemented by the Federal Reserve Board.
False. Fiscal policy is implemented by Congress.
Define liquidity.
The ability to readily convert a security into cash
If the government enters into repurchase agreements, what is the effect on money supply?
A short-term increase
